The Smart Frog

Tax Absurdities

2012-02-08T00:27:00.000-08:00

The word 'absurd'. Other similar words include 'illogical', 'ludicrous', 'illogical', 'incongruous'.

All are words which can be thrown at various parts of the tax law. The tax profession likes to call them "tax nothings", but The Smart Frog likes to call them "tax something-for-nothings".

Take the case of a man in business. He is VAT registered, using the much-heralded (by HMRC, at least) Flat Rate Scheme. He also receives rental income from a property in which he once lived (he doesn't make any money on this because the rents are outweighed by his mortgage interest).

Generally, VAT is not chargeable on rents received on a property because it is VAT-exempt income (unless there has been an 'option to tax' election - ignored for today's purposes). However, where a VAT registered business is under common ownership of a rented property, and the business is under the Flat Rate Scheme, then the rents received on the rented property also have to come into Flat Rate Scheme calculations. This means that, effectively, VAT has to be paid over to the VAT-man on the rental income (before expenses). Let you be reminded - the property is VAT exempt and no VAT has been charged on the rents, so the poor business-man has to find the VAT out of his own pocket.

So, what we have here is this. A property which is within the income tax net but pays no income tax because it is not making profits, but which is VAT-exempt yet the owner has to pay VAT over to the VAT-man on the rents received.

If that isn't something-for-nothing for the taxman then The Smart Frog doesn't know what is. In short, it's completely and utterly....absurd.

Whose Gain Is It Anyway?

2011-10-26T03:05:00.000-07:00

Time after time, the Smart Frog is asked for advice on ways to reduce clients' capital gains tax libilities. He is often asked "could I simply transfer half the asset to my spouse in order to use up his (or her) CGT exemption?". The simple answer is usually "yes" but, surprise, surprise, it's a bit more complicated than that.

'Ownership' for CGT purposes is not based on 'legal' ownership, but on a concept known as 'beneficial' ownership. So, it is not necessarily in whose name an asset is legally held which determines who owns it, and thus who is taxed on it, for CGT purposes.

HMRC consider the following factors when determining who is the beneficial owner of a property:-

1. Who occupies the property?
2. Who receives any rental income?
3. Who provided the funds to purchase the property?
4. Who receives the sale proceeds on disposal?

Numbers 1, 2 and 4 might be easy to set up prior to a sale (but as far in advance of sale would be recommended). However, number 3 might not be so easy to plan for, dare we say even impossible, given that it is something which has already happened in the past.

The message? To take advice BEFORE taking action because in some cases it might be too late to undo what has already happened. Of course, this applies not only in the above example but across the whole of the tax spectrum.

You have been warned.....

My mate down the pub...

2011-09-26T01:24:00.000-07:00

The Smart Frog was down the pub the other day and was asked by a fellow amphibian (not a tax expert) whether he should buy his next piece of artwork in his own name or in the name of his company. The immediate answer was to buy personally in order to avoid the infamous double-tax charge if acquired through the company.

The question was then posed: "Why?".

Usually, clients accept advice without wanting to know the in's and out's. But in this case, the Smart Frog's friend was curious to know exactly why. And so the Smart Frog talked it through with him, bit by bit, piece by piece.

This was a useful exercise because advice like this, which is "written in stone", is often a moving target and does sometimes change when tax rates and rules change. As we all know, capital gains tax has changed dramatically over the last 15 or so years - the abolition of indexation allowance, the introduction (and subsequent abolition) of taper relief, to name a couple of changes - but now with the 28% CGT rate it appears, in the Smart Frog's friend's case at least, that the tax savings of owning appreciating assets personally aren't necessarily as high as they used to be.

The advice given was very general, with the concluding comment "ask your accountant". Giving specific advice to friends is fraught with problems, and you can never charge the going rate anyway, so why put oneself in a vulnerable position without knowing the full facts? Impart a little advice, appear very clever, and your friend will be forever grateful.

But what has this really taught the Smart Frog? Be careful who you drink with - you might just spend the whole evening talking tax. Yawwnnnnn.....

Time for a Substitution?

2011-08-17T01:32:00.000-07:00

It's a well-known fact in the UK tax system that a well worded contract can assist enormously when a person is challenged under the self-employment and IR35 rules. A recent tax case has now shifted the emphasis in favour of HMRC in such instances, but is the Smart Frog actually surprised? Nope.

Briefly, where a contract contains a "substitution clause" then HMRC have often shy'd away from challenging it because of an Employment Tribunal case some years ago which ruled that such instances could not create an employment situation, and so self-employed and personal service company clients have always been advised to include a substitution clause within their contracts.

HMRC have always stated, however, that a contract must actually reflect what happens in reality. So, where a contract includes a substitution clause then a substitute must actually be used. This point had not, however, been tested in the courts. Until now.

The recent ruling threw out the substitution clause because it didn't apply in practice. This means that HMRC's long-held view is now enshrined in tax law, and so the Smart Frog expects an influx of IR35 and self-employment status reviews to come flooding in.

Is anyone actually surprised? Surely not. HMRC have always stated their view clearly, it's just that they hadn't had the balls to test it in the courts. But now they have, and they have won.

But surely it leaves us in exactly the same position as we were before, and that is for clients to ensure that all aspects of their contracts actually apply in practice, and are not just inserted for tax "convenience". That's what the Smart Frog has always advised his clients. Perhaps other accountants have not adopted the same stance, and perhaps they're the ones who are now up in arms. Cynical Smart Frog? Maybe.

The Smart Frog's life mission is to ensure that clients do not pay more tax than is necessary, but at the same time they must stay within the letter of the law. If clients sail close to the wind, then that's fine, but they must expect to be challenged by HMRC one day and, when they are, they must expect to lose once in a while. That's life.

Rant over.

Planning to Avoid Evasion?

2011-06-28T07:05:00.000-07:00

It's sometimes difficult to find the fine distinction between Tax Planning, Tax Avoidance and Tax Evasion, more so how far one can push a situation until it goes from Avoidance to Evasion. And, as we all know, the taxman doesn't like Tax Evasion (quite rightly so).

So, a quick lesson this week from the Smart Frog on the differences between the three.

Tax planning: When the legislation allows more than one possible treatment of a proposed transaction, tax planning takes place to compare various means of complying with tax law. It also includes ensuring that a client claims all allowances and reliefs clearly provided for by the law. Tax planning is completely acceptable.

Tax avoidance: Seeking to minimise a tax bill without deliberate deception, as this would amount to tax evasion or fraud. If the law provides that no tax is due on a transaction, then no tax can have been avoided by undertaking it. The term is now often used to refer to the practice of seeking to not pay tax, contrary to the spirit of the law. Tax avoidance is acceptable, but sometimes a bit iffy.

Tax evasion: The illegal non-payment or underpayment of taxes, usually by making a false declaration or no declaration to tax authorities. Tax evasion is a complete no, no.

So, dear reader, that's it. Sometimes the best tax advice is to plan to avoid evasion. The guy down the pub doesn't always know the difference, so don't listen to him. Listen to the Smart Frog. He knows best. As usual.

Edward the Accountantist - why the shame?

2011-06-08T02:57:00.000-07:00

Edward Hunter was the first candidate 'fired' in the latest series of The Apprentice. As he left the Boardroom he was advised by Lord Sugar to remember: "There's no shame in being an accountant."

Edward himself made a number of related observations about his profession including:

"I'm the wheeler dealer who accidentally became a financial professional."

"I was trained at one of the biggest accountancy firms; but I don't fit the mould."

"I don't need to show off that I can work out margins; I'm an accountant."

"I'm mildly accountantist (anti accountants)."

"Whenever I'm introduced to anyone and I want to stop the conversation, I just say, 'I'm an accountant'."

All this reminded the Smart Frog of a joke he once heard: How can you spot an extroverted accountant? He's the one who's looking at YOUR feet when he's talking, instead of HIS OWN. In your esteemed author's opinion, that does have a ring of truth about it, so perhaps Edward the Accountantist did have a point.

That said, we can only wonder if the 'biggest accountancy firm' welcomed him back with open arms? We suspect not. Shame.

Complification - part 2

2011-05-03T02:54:00.000-07:00

Continuing the theme from his last blog, the Smart Frog is pleased to announce that HMRC have announced a new, simpler (?), way for tax agents to register clients for Self Assessment. Judge for yourself.....

"HMRC have just altered the arrangement of hoops you need to leap through to get a new client registered for self assessment and on to your online client list. To register for self assessment the individual must complete form SA1, or if the individual is self-employed: form CWF1. The CWF1 form can be completed online or over the phone (0845 900 0444), if the individual already has an NI number. An individual who has become a member of a partnership should complete form SA401. If your new client is not yet registered for self-assessment, and hence has no UTR number, you can't complete an online agent authorisation so you need to resort to paper forms. Get the client to sign a paper authorisation form 64-8, staple it to the appropriate self-assessment registration form (SA1, CWF1 or SA401) and send both to the Central Agent Authorisation Team (CAAT) in Longbenton. Unless both forms are received together your client will not be set-up on the your online client list with HMRC. Alternatively get your client to register for self assessment first. When the UTR number comes through you can use the online agent authorisation procedure to officially register the individual as your client."

Simple then. Is it?

Just as well that the Smart Frog is a particularly SMART frog, otherwise he could get his webbed toes in a twist.

Complification

2011-03-24T08:30:00.000-07:00

In recent times HMRC have promised a simplification of the tax laws in this country which should have led to many planning opportunities. Remember the so-called "tax simplification" of pensions in 2006. Not. The subsequent changes led to the coining of the expression "complification". And then there are the swings back and forth as chancellors rethink their predecessors' ideas. Boy oh boy.

Some of the key highlights in the small print from this week's Budget include some more complifications:

- The increase to £50,000 in the annual charge for UK non-domiciled individuals from April 2012 for those who have been UK resident for 12 or more years and who wish to benefit from the remittance basis. The definition of residence will be put on a statutorily defined basis. Then the likes of Green and Stelios should be left in peace for a bit.

- The reduction in the main rate of corporation tax to 26% from April 2011 and by 1% a year thereafter to 23% in 2014. That should help offset the impact of the proposed cuts in capital allowances.

- The increase in the personal allowance to £8,105 in 2012/13, with a corresponding reduction in the basic rate band to £34,370. That should add a big slew of higher rate taxpayers to those already paying 40% and 50% tax.

- The increase in the lifetime limit for CGT entrepreneurs' relief from £5 million to £10 million - which sounds good but won't actually affect too many people. Except maybe Green and Stelios.

- The possible integration of income tax and NICs. But how on earth will they do that without huge "complification?"

The Smart Frog makes no apologies for sounding cynical. Let's see if time proves him wrong.

Happy birthday, Son - have a brand new car!

2011-02-16T03:23:00.000-08:00

Recently, The Smart Frog happened to jump across a rather neat and simple trick for family company businesses to fund their private car purchases for the family through the company in an extremely tax-efficient manner. So, he thought he'd share it with you, of course.

Try this for size.

Buy a car through the company for, say, £10,000 with CO2 emissions of, say, 100. Give said car to Son to use. Usual company car rules tax the car on the company director (i.e. Daddy). Taxable value (i.e. amount upon which tax is payable) is 10% of list price, therefore value is £1,000. Tax payable at, say, 40%, is £400 (or even lower if Daddy is a lower rate taxpayer). The car's running costs are claimable by the company in full in its accounts, and the purchase cost qualifies for 100% tax allowances because it is ozone-friendly.

All this, and the car doesn't have to be driven a single mile on company business. Little Johnny can happily drive around all day long wherever he wants. No need to keep a mileage log. No need even to work for the company. The company picks up the tab and gets full tax relief, Daddy pays the miserly company car tax bill, and Little Johnny can continue spending all day watching The Jeremy Kyle Show. Little Johnny is a very happy Little Johnny. Perfect.

Not sure the legislation was actually intended to produce this unlikely result. But it does. And so use it to your benefit, that's what we here at Smart Frog Towers recommend.

If The Smart Frog ever developed proper hands and feet then maybe he'd try out his own advice. Until then, it's jump, jump and away for him. See ya'...

PAYE - Precisely As You'd Expect?

2010-09-08T04:15:00.000-07:00

So, the recent PAYE fiasco has brought The Smart Frog prematurely out of hibernation. How could such a debacle go by without comment?

To summarise:

Almost six million people are embroiled in the biggest tax blunder for years.

About 1.4 million will have to fork out an average of £1,500 after underpaying through absolutely no fault of their own. Some will face far higher bills, though the Treasury insists no immediate repayment will be required if the sum is more than £2,000. Let's wait and see, shall we?

For 4.3million, the news is better. They will be told they are owed money by the taxman after having too much deducted from their earnings. The total in overpayments is £1.8billion, meaning an average rebate of £418.

For those who owe tax, there is an option. It's a little-known (certainly not in the general public-domain) rule called "official error" which broadly works to write-off tax which is owed under certain circumstances. Have HMRC publicised this? Have they heck.

The irony behind all this is that almost all of those affected are employees and therefore unrepresented and will, in all probability, know nothing about the "official error" rules and their rights.

Whatever eventually happens, The Smart Frog thinks that one fact is now glaringly obvious - the management of HMRC is grossly incompetent. Isn't all this just precisely what we've come to expect? They stagger from one crisis to another. Tax bills are wrong. Confidential data is routinely lost. The tax credit system is a total farce.

Should their management really be getting bonuses and appearing in honours lists or should they be dispatched to the nearest job centre? In the real-world outside the comfy arms of the Civil Service they wouldn't survive a minute.

Rant over. Night night.

OK, so what d'ya reckon, Mr Small Business Man?

2010-03-25T00:48:00.000-07:00

So, were there any presents in it for you? This was never going to be a tax cutting budget, but it wasn't really that bad, was it?

The Smart Frog quites like the Annual Investment Allowance, an allowance which enables 100% of certain capital expenditure to be set against business profits (hithereto only available at a maximum 55%). The increase in the AIA to £100,000 (previously £50,000) will affect a relatively small number of businesses (those with capital expenditure between £50-100k) but they may well be a crucial sector in the economy. It may actually enable genuine investment by that minority of small businesses who want to invest and grow.

When the Smart Frog was told that the Chancellor might double entrepreneurs’ relief from Capital Gains Tax he assumed that also meant CGT rates were going up, but no they didn't. A nice little surprise there, then.

This of course allows the Chancellor to hold himself out as a champion of small business, as the Tories are talking about cutting the main rate of Corporation Tax and abolishing the AIA – which of course helps big business. The Smart Frog suspects this is the big idea here, because nobody wants to go into an election tagged as a friend to the banks.

Very importantly (and despite rumours to the contrary), the business tax payment support service (designed to help small business pay their tax by installments through the current difficult economic climate) is to continue. An independent review is to be required, but only where debt exceeds £1m. Not a problem for small business, then.

Usefully, the extended trading loss carry back provisions (for both income tax and Corporation Tax) will be extended for another year. Hopefully that takes them close to the end of their useful lives – anyone still making large losses by then is likely to have gone out of business!

The abolition of the 'furnished holiday lettings' provisions will still be going ahead, despite protestations by The Smart Frog, as well as the various accountancy bodies. Expected clarifications have not yet surfaced. This will be a mess.

Overall, though, there was no harm done to small business, and even some improvements. What d'ya reckon?

It's a bit of a lottery, really...

2009-12-07T03:31:00.000-08:00

Rarely can the portents for a Pre-Budget report be as ominous as this one. Chancellor Alistair Darling will stand up on Wednesday shortly after noon to make what many people predict might be his last Pre-Budget statement.

His advisers at The Treasury always makes sure he has something to say - for example, the massive public deficit resulting from this year’s bank bail-out - but will it really matter?

The change of the rate of VAT back to 17.5% was set out in March’s budget and a new 25% flat rate for capital gains tax is expected, but could the impending general election make this year’s PBR be the dampest of squibs?

Trying to predict the contents of the Pre-Budget statement is always a bit of a lottery but, with a little bit of insider knowledge, here’s what we at The Smart Frog offices are predicting.

· Confirmation of further staged VAT rises in the future.
· A raise in the basic rate of income tax by 1p across the board from April 2010.
· Further 1% rise in NICs across the board from April 2011.
· Duty rises in petrol/diesel.
· No alcohol duty rises for some pre-Holiday Season cheer.
· Extension of the new three year carry-back of £50,000 of losses beyond the scheduled expiry date of November 2009.
· Increase in relief for entrepreneur and employee shareholders/investors to encourage long-term investment.

Check back to see how many of these predictions were correct. And before you ask, The Smart Frog is keeping the numbers for next weekend’s National Lottery a closely guarded secret!

Super, Duper...

2009-11-02T05:59:00.001-08:00

The Smart Frog remembers back to the day when he was but a tadpole squating around the monopoly board wishing he was aboard the battleship. But, alas, he always seemed to be bankrupt by the end of the game by continually landing on the space between Park Lane and Mayfair and collecting a whole lily-pad of Super-Tax debts.

This blot on his wonderful youthful days has come back to haunt him in the form of the aforementioned Super-Tax being introduced in real-life. In real-life in the UK, next April, to be precise.

With a bit of analysis, it is easy to compare the new tax rates with those from the early '80's where rates were at 60%, but thankfully we're not at the 98% rate from the 1970's just yet. In the current financial climate, the Government is naturally keen to fill its coffers, and by our reckoning the new tax and national insurance rates, coupled with the changes to pension tax relief, will empty almost £13.24 Billion from the pockets of the UK's top 2% of earners by 2013. That's a lot of dosh!

The new rules will start to bite from April 2010. But what are they? See how these float your boat...

- Earners will start paying tax at 50% on that part of their income which exceeds £150,000 per year

- Personal tax allowances will be restricted by £1 for every £2 of income which exceeds £100,000 per year. This means that once income reaches about £113,000 (using today's rates) then there will be no personal tax allowance available at all

- Higher rate tax relief on personal pension contributions will slide away where income exceeds £150,000 per year (this rule applies with effect from April 2011), such that no higher rate relief will apply where income exceeds £180,000 per year

- Because of the peculiar way the system will work, the effective tax rate will actually reach 60% for those unlucky enough to find themselves in the worst income bracket

So, how can those poor souls protect themselves from the ugly clutches of the 50% (or even 60%) tax man? Well, there's plenty of ideas, but the basic premise is to try to ensure that income falls below £100,000 per year. Here's a few thoughts...

- Try to structure 'income' as 'capital gains' - this will most likely apply to employees who participate in company share schemes. Capital gains will not attract the Super-Tax rate, and indeed can be as low as 10%

- Try to 'split' income between spouses - for instance, ensure that income (such as investment income - dividends, bank interest, etc.) is equalised between spouses such that neither sneaks into the Super-Tax league. This can also apply to family companies by, maybe, ensuring that shares are held equally between spouses (but, be warned, tax avoidance rules are prevalent here, so take advice!)

- Ensure that trading losses are claimed as beneficially as possible - this will most likely apply to business owners

- Try to 'trigger' income arising before the new rules hit, for instance employees participating in short-term share schemes might want to exercise their options before 6 April 2010. Ok, ok, it will bring forward any tax payable by a year, but it could significantly reduce the amount of tax to pay

- Try to make full use of tax reliefs whilst they still apply, for instance Gift Aid relief and Personal Pension relief

So, that's The Smart Frog's civil duty done for today. Ensure you message him for specific advice before you take action, otherwise Super-Duper could become Super-Pooper!

Flippin' eck!

2009-06-18T03:56:00.000-07:00

The news has been saturated recently with the revelation of MP's expenses, and quite rightly so. They've been very naughty boys and girls.

But now there has been the sacking by Gordon Brown of Kitty Ussher for 'flipping' her private residences for tax purposes in order to maximise her capital gains tax exemptions. The Smart Frog thinks that this is a step too far and completely unnecessary.

There is an important difference here. MP's have blatantly abused their internal rules for their own financial benefit. The rule which allows an individual, any individual, to elect to treat one residence over another as his or her home for capital gains tax purposes is simply part of this great country's tax laws, and surely each and every one of us is entitled to arrange our tax affairs as efficiently as possible. For the head of our Government - the guys who approve these laws - to get rid of a member of his staff for legitimately benefitting from those rules is quite simply wrong.

It's like saying that Joe, the self-employed plumber, can't claim for the use of his van. Or like Sir Green can't claim to be not resident in the UK. All are simply arranging their tax affairs in as tax efficient manner as possible, within the letter of the law, and so why should one lose her job because of it?

Coincidentally, the Smart Frog is currently advising a client on the same issue. The advice will be taken or not taken, but nonetheless he would be remiss not to give it, because that's what he's paid for. To criticise an MP for taking very good, sound advice from her accountant is simply not on. Would Joe or Sir Green ignore the advice of their accountant if it was going to save them heaps of tax. One thinks not - yet one suspects that they were nodding their heads with approval upon hearing the unfortunate fate of Ms Ussher.

The practice of flipping one's properties in order to optimise one's tax position has been around for years and years. It's taking it a bit flippin' far when one can lose one's job over it.

Why so complex???

2009-04-29T03:48:00.000-07:00

The latest Budget could well prove to be the final nail in the Labour Government's coffin as far as many voters are concerned.

Among other reasons the proposed additional higher income tax rate of 50% and yet further layers of complexity adding to what is already a hideously complicated tax regime must have had the Government's opposition doing cartwheels.

The Smart Frog is no political commentator and any comments about the Labour Government are solely based on his views of the UK tax system. He speaks as he finds. And sadly what The Smart Frog finds is a tax system more unfathomable and incoherent than at any time in a tax career that spans over two decades.

He has expressed the view on numerous occasions that the tax system needs to be straightforward enough that the vast majority of taxpayers can understand how their tax bills are calculated. What the latest Budget suggests is that this will never happen under the present Government, because simplicity does not seem to be on their agenda.

Ah well, at least is does keep those pesky tax advisers in a job, so it's not all bad...

Tax Returns? What Tax Returns?

2009-02-09T04:08:00.000-08:00

So, 31st January has been and gone. The first year of filing online and oh what a joy!

In years gone by, The Smart Frog has hopped down to the local tax office before midnight on 31st January, frantically shoving last-minute Tax Returns through the already-jammed tax office letter-box. Not this year though. Oh no. This year went by without hitch, all thanks to the seemingly effortless way that the HMRC online filing system has worked. Credit where credit's due - it's fabulous and never once let us down. There are a small handful of clients for whom we just couldn't submit their Returns, but these are those who presented their papers to us at the 11th hour and they understood that they might be late.

Only a week has gone by since the Tax Return deadline, yet it seems like a distant memory. Work which was put on hold during January has surfaced to bite us all on our tail-less bums. We're not complaining, though. Without it we would be sitting here twiddling our webbed-fingers wondering what to do with ourselves - or we would were it not for Mr Taxman setting constant deadlines for us to plan for; the next big one is obviously the end of the tax year (5th April) where tax planning keeps us occupied. Can't wait.

Until then, The Smart Frog team have noticed a large increase in queries recently from clients about 'Residence'. It seems that many are off to sunnier climes and want to know how it affects their tax position in the UK (it does, by the way, greatly affect it). Is this a knee-jerk effect because of the recent spate of arctic weather, or to get away from the sliding economy? With the £ faring badly against the Euro I am not sure that taking time out in Europe will have the desired financial effect, but I can imagine the warmer climate will ease the burden somewhat. Personally, I like to stay hidden from the sun - it has a nasty effect of turning my lovely green skin a light shade of yellow. Yuck!

3 hours or 3 minutes? Your choice...

2009-01-16T00:40:00.000-08:00

In the lead up to the 31 January Tax Return deadline The Smart Frog becomes more popular than usual amongst friends. Friends who need help with their Tax Returns at the last minute. That's not a problem, of course, because The Smart Frog does like to help out whenever he can.

This week a friend had been trying to complete his Tax Return online using HMRC's 'intuitive' online software and, boy oh boy, what a pullava. Suffice to say, he eventually gave up and so sought my help. After 3 hours online, being thrown out several times in the process, we finally finished what would have taken 3 minutes using our own specialist Tax Return software.

Preparing a Tax Return is easy when you know the tax law inside out and prepare Tax Returns day in day out. But for a layman doing it once a year it is a completely different story. I hadn't appreciated this quite so much until I actually tried to help my friend this week and all I can say is that I wouldn't want to be a non-expert trying to grapple with the ever-increasing complexities of the UK tax system and accompanying tax forms. And god forbid anyone who actually gets it wrong - penalties galore for non-compliance or for getting it wrong.

I shouldn't complain. The more complicated the tax system and the Tax Return process then the more The Smart Frog is in demand, and it does keep the wolf from the door. But, please, please Mr Taxman, give us a break and tidy up your online sysems a bit. We all have better things to do with our time.

Chaotic Commotion at Christmas

2008-12-30T03:19:00.000-08:00

23 December - The office Christmas party. A little respite from the hard work we've all put in during December. We all know what January has in store for us, so the office party is always filled with mixed emotions - a time for letting our hair down, but always with a cautious eye on what's to come. Enjoy the fun whilst it lasts, guys - January is just around the corner.

22 December - The final countdown to ... the end of the month before the Tax Return filing deadline. The tax team are as serene as swans, gliding gracefully through their work (while paddling furiously below the water line!). I just hope they manage to keep their heads above water. So far so good, and everyone is fit and well. There is this flu bug going around though, so fingers crossed that we all manage to avoid it. The last thing we need now is a mass reduction in manpower for January.

21 December - The usual challenge is to get the remaining work in next month. And to get the signed Tax Returns back. Thankfully our excellent personal tax software has been kept up to date by the tax team so we know exactly where we are by running the tracker reports. Next month I'll be getting almost daily update reports telling me, for example, how many returns are still not started and how many are out for signature but not returned. The aim, as in previous years, is to have no late returns except those where the clients have decided themselves to be late (possibly by resisting all attempts to be contacted by us, I should add). I don't see why we shouldn't achieve that again this year.

Impeccable timing as always!

2008-12-18T09:54:00.000-08:00

Why oh why does the taxman do it? December and January are notoriously the busiest time of the year for accountants and tax advisers and yet, despite constantly shoving the "do it online" message down our throats, problems ALWAYS, ALWAYS arise with their online filing systems at Christmas and the New Year.

This year has been no exception. Actually, yes it has been an exception - it has been WORSE THAN EVER!! New clients for whom we have submitted 'authorisation codes' don't show up as our clients on their online system. Tax Returns submitted online for established clients don't show up as having been submitted, so we've no way of knowing if they've been received by HMRC. Then you call their helpline and a teenager (probably spotty, but that's the beauty of telephones - you don't have to look at the oik at the other end of the 'phone!) utters some nonsense about not being a tax specialist, but instead he's an IT geek who really wants to go home and play on his XBox, so you go away feeling you're nowhere closer to resolving the problem.

My tax assistant has brought Issue 33 of Working Together (a publication issued by HMRC's so-called Public Relations department) to my attention. Since June 1996 we have received copies of our clients' Self Assessment statements every six months. In January we usually devote quite a bit of time to checking our agents copies and telling clients if they're correct or not. But not this year "because of tighter data security requirements across all government departments", whatever that means. In fact, tax agents won't be getting any more SA statements until after October 2009.

So, advising clients on how much tax to pay at the end of January is going to be fraught this year as I anticipate that, as usual, quite a number will receive incorrect statements. How many will have tax liabilities unexpectedly coded out through their PAYE coding? Or were expecting to have tax coded out but will then receive an unexpected bill? The snag is, we may not know unless they tell us and if they don't tell us then we have absolutely no way of knowing what's going on. By October it will be too late to avoid the late-payment interest and surcharges for client's for whom HMRC have got it wrong. It will be like the blind leading the blind! Arghhhh.....

Must go - got to call the taxman and have a moan. I wouldn't want to be him.

How complicated can it be?

2008-12-09T01:59:00.000-08:00

It annoys me when the taxman introduces new rules, designed to offer tax breaks, but doesn't publicise them enough for the man on the street to know about them. More annoying is when the new rules are so complicated that even accountants find them difficult to understand, let alone Joe Bloggs. A typical recent example is the wholesale changes made to the Capital Allowances system for businesses.

Huge numbers of businesses are losing out on tax breaks when they buy and sell land and property, and when they spend money doing up property they already own. Many, or perhaps even most, owners of commercial premises are missing opportunities to save tax, and the amounts at stake can be staggering.

The reason these tax breaks are being missed is that many accountants (even some of the big firms) misunderstand the rules. A survey of around 6,000 accountants, carried out at the start of 2006, showed that many are struggling to understand the rules and are failing to make adequate claims. But is that their fault? In recent years the tax system has become so complicated that you really need to be a specialist in order to keep track. Accountants in general practice have enough on their plate keeping upto date with the myriad of changing rules in auditing (don't yawn), let alone other areas such as tax and VAT.

Capital allowance claims can produce tax savings running into tens of thousands of pounds. A rule of thumb is that the tax savings can typically be up to ten per cent of the cost of the premises. Buy a site for £500,000, for example, and you could be saving £30,000 or £40,000 or £50,000, or even more. But relief is only given if a proper claim is made and the rules for claiming can be so complicated that people are put off at the first hurdle!

Changes introduced from April 2008 have increased the percentage of expenditure qualifying for tax relief. It may sound too good to be true, but in reality this is a completely legitimate tax break and claims are being made every day using the old, defunct rules. Businesses (or, more importantly, their accountants), need to bring themselves upto speed with the new rules before the strict time-limits in which to amend their claims have passed, because the opportunity of increased allowances will then be lost forever. Call me an old synic, but perhaps that's why the taxman doesn't publicise the rules as much as he should. It wouldn't surprise me.

Hello Darling...

2008-11-24T12:15:00.001-08:00

Today the Chancellor proposed a series of measures in his Pre-Budget Report which are, apparently, going to turn around the Great British Recession of 2008.

Some might have assumed that the Right Honourable Gordon Brown was to give this speech - after all, he has made every other comment on the economy in the past 3 months and no doubt he wrote it (according to some). Darling is, after all, just his puppet spouting it out (according to some). Many people are saying that the person who caused this mess and promised no more boom and bust should have stood up and accepted the blame.

As for the VAT announcements, then doesn't cutting VAT, then adding the saving back on to fuel excise duty, mean that zero rated food in the shops will be more expensive? So how does that stimulate more spending elsewhere? Also, and maybe I am an old green cynic, but all I can see with a box of £4.19 washing powder falling to £4.10 is that it will still be £4.19, and the retailer will simply take an extra bit of profit!

On the plus side, there is to be no 'Income Shifting' legislation introduced into the 2009 Finance Bill. At least the Government seem to have recognised that this nasty piece of proposed-legislation is unfair and is simply another way of attacking Family Companies in the wake of some high profile tax cases in recent months. I can hear the wiping of sweat from the foreheads of many Family Company Directors as I type. But for how long will this respite last? Who knows? To quote "The Government will instead keep this issue under review". So, more uncertainty for Family Companies, but at least today's announcement has given a temporary lifeline for some.

There will be National Insurance changes too. But can't anyone see that the only way to stave off the recession is to create more employment opportunities? Increasing the rate of secondary Class 1 NICs is not the way to do that. Abolition of secondary Class 1 NICs and the myriad of other regulations that waste the small businessman's time and money is required; but it won't happen because nobody in Government has the foggiest idea of how the backbone of the economy actually works (according to some).

There was some talk today too of helping out company tax debtors (i.e. companies who can't afford to pay their tax bills). So I called the deferment helpline and they didn't have a clue. There is apparently no new guidance - it just seems to be a new phone line that redirects you to the old system of being unable to pay. Poor chap didn't seem to have a clue what was going on although he tried really hard to find the guidance for me, before deciding there wasn't any. I just hope he was just the work experience lad and not the real deal.

The next few days whilst all this is analysed are going to be very interesting. Very interesting indeed. Until then, this little green amphibian is going to take a long deep breath, relax, and sleep. Tomorrow it will all seem like it was just a bad dream.