The View from No 50
K P Bonney & Co
Chartered Accountants and
Chartered Tax Advisers
Ilkley† LS29 6JA
Tel:† 01943 870933
Fax:† 01943 870925
STOP NICKING OUR TAX RELIEF!
Do you remember when ISAís were first introduced they offered very attractive rates of interest?† You could often get a better rate of interest on an ISA than a comparable bond.† But as time went by the banks and building societies realised they could snaffle some of the tax benefit of ISAís for themselves.
Letís say a bank is willing to pay 2% per annum fixed for a two year investment. ††For the saver this provides a rate of return as follows
†††††††††††††††††††††††††††††††††††† ISA††††††††††††††† Bond
†††††††††††††††††††††††††††††††††††††† %†††††††††††††††††††† %
Gross†††††††††††††††††††††††††† 2.00†††††††††††††††† 2.00
Basic rate tax†††††††††††††† 0.00†††††††††††††††† 0.40
Net return to a
basic rate taxpayer††††† 2.00†††††††††††††††† 1.60
Higher rate tax††††††††††† 0.00†††††††††††††††† 0.40
Net return to a
higher rate taxpayer††† 2.00†††††††††††††††† 1.20
The sneaky banks say to themselves, why are we paying 2% for ISA money?† Savers love ISAís because they are tax free.† Savers will always put money into tax free savings.† If we offer a gross rate of less than 2% most of our savers are still going to get an after tax return which is better than the bond.† Letís have a share of that tax saving ourselves by shaving something off the gross rate of interest on the ISA.† And with varying degrees of greed, that is what they do.
Of course interest rates are so low these days we hardly notice our pockets being picked.
When visiting the Botanical Garden at Cambridge recently (recommended by the way) I was offered the following terms of admission
Adult with Gift Aid††††††††††††††††††††††††††††††† 4.95
Never before have I come across such pricing.†
No basic rate taxpayer will sign up for the gift aid option as that costs an extra 95p.
A higher rate taxpayer will sign up for gift aid as the net cost of admission is still 28p less than it would otherwise be.† But the charity is cleverly grabbing some of its supportersí higher rate tax relief for itself.
†††††††††††††††††††††††††††††††††††† Gift††††††††††††††††††† No
††††††††††††††††††††††††††††††††††††† Aid†††††††††††††††††† Gift
Receives on admission 4.95††††††††††††††† 4.00
Receives from HMRC†† 1.23
Receives in total††††††††† 6.18†††††††††††††††† 4.00
Pays on admission†††††† 4.95†††††††††††††††† 4.00
Basic rate relief††††††††††† 0.00†††††††††††††††††††††††
Cost to basic rate
taxpayer††††††††††††††††††††† 4.95†††††††††††††††† 4.00
Higher rate relief
if applicable†††††††††††††††† 1.23†††††††††††††††††††††††
Cost to higher rate
taxpayer††††††††††††††††††††† 3.72†††††††††††††††† 4.00
How I wish these institutions would stop nicking our tax relief. †††††††††
Have you ever closed a bank account?
Would it surprise you to learn that banks are known to re-use old account numbers?
I learned recently through Taxation magazine of a company which moved its banking from one bank to another.† As VAT repayments were rare it didnít think to advise HMRC about the change.
Sometime later the company filed a VAT return which showed a repayment.
Understandably, HMRC made the repayment to the only bank account of which it was aware.
What would normally happen in these circumstances is the transfer of funds would fail owing to the closed status of the account.† The funds would be returned to the payer and matters would be resolved.
But that didnít happen in this case.† By the time HMRC made the repayment the old bank had allocated the old account number to a new customer.† The VAT repayment therefore went there.†† The new customer promptly withdrew the funds and disappeared.
The company asked HMRC to make a repayment to its new bank account.† HMRC refused.† The received opinion is that it was right to do so and that the companyís remedy lies elsewhere.
Our Advice:† If you have nominated a particular bank account to receive tax repayments or dividends or other occasional payments and have closed that account but have not informed the payer, do so now.†
Feedback from the original article reveals that even if you pay your VAT by direct debit, which means HMRC holds your current bank account details, it only updates its records in regard to repayments when you notify them.† You can notify them online.
A client contacted me the other day to tell me she had transferred her ISA from one provider to another.† Quite unexpected and unsolicited she had received a bank transfer of £100 from her new provider, Fidelity Funds Network.† In effect this was a Ďthank youí to her for bringing her business to them.
What a pleasant surprise!
What is the tax situation?
This has always been something of a grey area.
Earlier this year HMRC published its view on the taxation of money which is fed back to investors either directly from fund management companies or via intermediaries.
Its view is that such payments are taxable in the hands of investors.† The person who makes the payment to the investor is required, with effect from 6 April 2013, to deduct basic rate tax and to pay that tax over to HMRC.† The investor is supposed to declare the receipt on his or her tax return.† If the investor is a higher rate taxpayer there will be further tax to pay through the self-assessment procedure.† If the investor is a non-taxpayer the tax deducted at source will be recoverable.
Fidelity Funds Network had not deducted tax from the payment to my client.† Had they slipped up?
No, they hadnít.† HMRCís view is that as ISAís are effectively income tax free zones.† Any money rebates or incentives fed back to investors from such products are also tax free.
Phew that was close.
But many rebates and incentive payments originate from non-tax free zones such as OEICS and investment bonds.† No doubt the financial services community has had to devote considerable amounts of time to working out how best to cope with this new ribbon of the red stuff.
LOVE IS BLIND
A man left work one Friday afternoon. Instead of going home he stayed out the entire week-end, hanging out with his mates and spending all his wages.† When he finally got home on Sunday night he was confronted by his very angry wife.
After two hours, she stopped nagging and said: 'How would you like it if you didn't see me for two or three days?'
'That would be fine with me,' he replied.
Monday went by and he didn't see his wife. Tuesday and Wednesday it was the same.† On Thursday the swelling went down just enough for him to see her a little out of the corner of his left eye.
Copyright:† K P Bonney & Co LLP 2013.† All rights reserved.† No part of this publication may be produced, stored in a retrieval system, or transmitted in any form or by any means, electronic mechanical, photocopying, recording or otherwise without prior written permission of the publishers.† Disclaimer:† The publishers have taken all due care in the preparation of this publication.† No responsibility for loss occasioned to any person acting or refraining from action as a result of any material in this publication can be accepted by the authors or the publisher.
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