Every week we take a look at what is trending in the accountancy and tax press and share items that we think will interest you. However, these are only outlines and where they relate to tax planning should not be acted upon without looking into them more completely as everyone’s circumstances are particular to them. You need to take specific advice appropriate to your own circumstances.
While every effort is made to deliver accurate, informative and balanced articles this content is general in nature and should not be used as the sole basis for making decisions.
Why does the tax system have to be so complex?
The tax system is always changing to accommodate political will. We currently have numerous temporary tax measures designed either to boost the economy or to drive the green agenda.
Then there is all the needless tinkering to score political points such as the minimal transfer of personal allowances between spouses or civil partners and the high income child benefit charge (HICBC. Are the benefits really worth all the complexity?
Now we have the temporary enhanced loss carry back, which has been wheeled out yet again in a time of economic hardship. But the resulting tax refunds will need to be paid for out of the rest of the tax system so how much of this is politics and how much is economics.
The work of the Office of Tax Simplification (OTS) seems to be ignored and its earlier efforts undermined by each successive Chancellor.
Here is a list I found in an article by Rebecca Beneyworth where she lists out all the other factors to be taken into accounts when making a claim to carry back losses. She calls it her unhappy list. It illustrates the complexities associated with a simple carry back of losses.
- the availability of marriage allowance and the need to put in backdated claims;
- HICBC and the possibility of the liability moving retrospectively to the other partner in the household;
- HICBC where an election has been made to not receive child benefit;
- pensions annual allowance charges levied previously, and whether these were dealt with through ‘scheme pays’
- the impact of loss relief on repayments of student loans;
- the presence of interest relief on residential lettings and the impact of a loss claim on the interest previously relieved;
- whether the taxpayer has prepared their business accounts on a cash basis, which means the new relief is not available to them;
- capital gains tax liabilities, which may be affected by a carry back loss claim as a result of the income reducing;
- tax liabilities now arising on gift aid payments made previously; and
- identifying and capturing separate relief for Class 4 NIC.
So, by introducing the temporary loss relief carry back, the Chancellor is highlighting the complexity of the tax system over which he presides.
We also now have the reporting system for residential property gains where other gains and losses and income determine the rate of tax payable on that gain. But this system is separate from the Self Assessment system. This seems like needless duplication and a waste of resources.
It is probably true to say that nobody is remembered for getting rid of what we might regard as unnecessary complexity. There is a saying that you cannot remove complexity, you must add simplicity.
Should government be forced to adhere to the principles of the Office of Tax Simplification or would the potential for political fallout be too much for any Chancellor to want to grasp that nettle. It does beg the question – Do the Chancellor and his advisers actually understand how their measures affect the rest of us in practice. I have my doubts.
In that case, should the design and implementation of the tax system be taken away from government, who would just set targets for the new department to achieve but otherwise leave them to design and operate the system. I think this is very unlikely to ever happen.
There is always only one compulsory registration date. There might be scope to register before this date on a voluntary basis, but not after this date. So broadly if the business turnover exceeds £85000 in the previous 12 months, you have to register. You cannot defer that date.
A trading business can only deregister from a current or future date. You cannot backdate deregistration.
Option to tax
The important issues here are:
- HMRC’s quoted time to deal with option to tax elections is 40 working days meaning eight weeks.
- On the transfer of a going concern (TOGC) you may have a need to prove to the seller that the election has been made. This approval does not need to be acknowledged by HMRC. HMRC encourages sellers to make the election by emailing email@example.com which makes it is easier for the seller to prove the election has been made and meet the TOGC requirements.
- An election can only be backdated a maximum of 30 days from the submission date unless you can show that the decision to opt was made more than 30 days ago, but just not notified to HMRC on the relevant form.
HMRC’s form VAT652 is the best way to notify error corrections. A letter is fine as an alternative method, but using the form reduces the risk of omitting important information.
Inadequate Company Accounts
John Thomas Hanbury was sentenced to eight months in prison, suspended for 12 months, and was given 150 hours of community work at Bradford Crown Court on Wednesday after he pleaded guilty to failing to keep adequate records when he was director of Crownsbury Ltd.
Between 4 January and 18 July 2016, Hanbury had failed to ensure Crownsbury maintained and/or preserved adequate accounting records.
As a result, it was not possible to verify what the company’s income and expenditure was after 3 May 2016 which was the date its bank account was closed.
Further investigations also found that it was not possible to determine the reason for receipts totalling £7,849 received between 24 March 2016 and 8 April 2016 into Crownsbury’s bank account from a connected company, where Hanbury was a director, as well as determining the reason for a payment of £520,000 into Crownsbury’s bank account on 15 April 2016.
There were also numerous other payments out of the company’s bank account for which no proper explanation or verification could be found.
Before this Hanbury had been found guilty of assisting in the supply of controlled drugs, receiving a suspended sentence which was still in force for this prosecution.
Julie Barnes, chief investigator at the Insolvency Service, said: ‘Company directors must fulfil their legal obligations and John Hanbury totally reneged on his responsibilities.
If you are worried about your own record keeping, get in touch and we can advise and assist you fulfil your statutory obligations.
The Pandora Papers
The International Consortium of Investigative Journalists has released another batch of papers exposing money laundering, tax evasion and other nefarious activities.
They have now received a leak of close to 12m files of financial documents, which expose allegations of more dirty deeds by the rich and the powerful.
Hidden assets lie at the heart of this story, especially those of wealthy politicians and their associates from the Middle East, Eastern Europe and the UK.
The other area picked up by UK media is the alleged connection between donors to political parties and corruption. The Conservatives were at the centre of this aspect of the BBC investigation.
It wasn’t just the Conservatives that were in the spotlight. Tony Blair and his wife purchased a London property for close to £6.5m. The vendor had placed the building in a company and, as a result, no stamp duty was due, costing the Exchequer over £300,000.
I have no doubt that most if not all of these transactions are legal and as such it is the fault of the lawmakers that these loopholes exist. However, although the deals may be legal, they could politically or otherwise be quite embarrassing.
Chancellor Rishi Sunak has announced that HMRC will examine the 12m documents in the ‘Pandora Papers’ for evidence of tax avoidance in the UK. Will he also be assessing the faults of the lawmakers?
Sunak also told Sky News on Monday morning that he had never benefited from any offshore schemes of the kind described by some of the leaks. Given the personal wealth of himself and his family. I don’t suppose he needs to.
The investigation in the papers was conducted by the International Consortium of Investigative Journalists (ICIJ) which is a global consortium of over 600 journalists from 117 countries with the UK investigation being led by BBC Panorama and the Guardian.
The documents include information from 14 financial service companies in countries including the British Virgin Islands, Panama, Belize, Cyprus, the United Arab Emirates, Singapore, and Switzerland.
If you have any questions about any of these, you know where to find us. If you prefer, just give me a ring on 07770 738770 or email me at firstname.lastname@example.org.