Thursday, 11 December 2008

Gordon in Wonderland

The BBC reports the Downing Street reaction to the comments of Peer Steinbruck, the social democrat German finance minister but The Times reports the comments with less spin.

I would not have thought the remarks were that controversial. I expressed similar views in this blog on 28th November, and I was not alone.

"You are old, father Gordon," the young man said,
"And your hair has become very grey;
And yet you incessantly stand on your head
Do you think, at your age, it's the way?

"In my youth," father Gordon replied to his son,
"I feared it might injure the brain;
But, now that I'm perfectly sure I have none,
Why, I do it again and again."

Thanks and apologies to Lewis Carroll.

Friday, 5 December 2008

Tax tips hot off the press

Subsistence for sole traders and partnerships

HM Revenue & Customs have for many years allowed sole traders and people trading in partnership to claim reasonable subsistence costs on business trips involving overnight stays away from home, though they have generally resisted allowing costs of meals away from home or office on day trips, relying on case law which states that one eats to live, not to work. Claims to deduct the cost of lunch and other snacks on day trips have thus been refused.

Of course employees have generally been allowed to reclaim such subsistence costs without being taxed on them and many sole traders may well have slipped through claims for their obviously healthy lunches in blissful ignorance of a strict interpretation of the law

Anyway, HMRC is proposing to allow for all sole traders etc. reasonable day trip subsistence costs in the course of business, such as the motorway burger, and are enshrining what has sometimes been allowed on a concessionary basis (where a daily trip might have been outside the normal pattern of travel) into legislation and altering their own guidance manual for their staff. What costs are “reasonable” is not exactly defined – it could even be £30 which might be about the going rate for a motorway lunch - but you still have to keep your receipts!

UK based US taxpayers

Most US taxpayers receiving non-UK income or gains between April 6, 2008 and December 31, 2008 will now owe both US and UK tax on the same worldwide income. (The UK significantly changed the rules for resident ‘non-domiciled taxpayers’ from April 6, 2008.) US tax specialists are suggesting that in most cases the simplest way of avoiding this ‘double-charge’ is to ‘pre-pay’ additional UK tax by December 31, 2008 so that they can set the UK tax paid against the US tax liability for 2008. This is fine in theory, but UK tax due for 2008-09 is not actually payable until 31st January 2010. Therefore HMRC’s system will want to repay any tax that it perceives as “overpaid” prior to that date, and certainly would not allocate to UK tax until that tax became due. US taxpayers are likely to have a lot of headaches over this one, telling HMRC to keep money on the account.

Residence issue

There was a somewhat surprising High Court judgement finding that a South African commercial pilot based in South Africa but with a UK property he used for overnight stays should be treated as resident in the UK (as well as being resident in South Africa). The pilot in question flew long haul for British Airways. It has long been accepted that a person may be resident in more than one country for tax purposes (in which case where both countries would seek to tax a person there are “tie-breaking rules) but the particular surprise here was that it was found that the pilot’s presence in UK was found to be “not merely transitory” because he had a permanent contract to fly out of Heathrow.

I will not go into too much technical detail, and there may well be an appeal, but this does indicate that the long arm of HMRC is extending ever further, and those of you who spend most of their time outside the UK need to be aware that it is important to update your professional adviser on your movements, particularly if you visit the UK frequently for work purposes.

Certificates of Tax Deposit

If you do anticipate having to pay large amounts of UK tax in the future and have put aside funds for this purpose, it is worth mentioning that HMRC pay quite generous rates of interest up to the due date for payment of the tax, possibly better than the high street banks. You could say they are as safe as the Bank of England, though that may not be as safe as it was, and HMRC does its general banking through Alliance & Leicester these days. However, being serious, and if you have to pay tax at some point CTDs are well worth considering.

Bank and personal guarantees

There was a case recently which might become very important in the light of the current economic climate. A director had given a personal guarantee for a company in which he was a 5% shareholder, and then a month after he left, the company collapsed and the guarantee was called in. He tried to set his loss against his employment income, but this was not allowed because the expense was not incurred in the course of his employment – he had left. This was rather unfortunate. There is a capital gains loss he can now claim, but without capital gains profits to set this against he is very severely out of pocket. I suppose that if you have given a guarantee you should hang on in the business until after it is called in – not always practical or even legal in some circumstances as it is unlawful for a company to continue to trade whilst insolvent.

In this case, an appeal is unlikely to be successful.

Demibourne – “self-employed” deemed an employee

HMRC has issued new guidance on procedure where a self-employed person is found in reality to be employed. There is now a power to set the tax paid by the person when supposing he or she was self-employed against the PAYE tax for which the employer becomes due for the same period. Of course the employer will still be liable for significant extra National insurance Contributions and interest and penalties as appropriate, but previously income could have been actually taxed twice over in such circumstances. The new guidance is here. (Click!)

Filing online

For those of you whose tax returns are still outstanding you have to file online by 31st January 2009 your 2007-08 Tax Return. If you do not have a professional adviser (why not?) remember that there was complete chaos at the end of January 2008 with the Revenue’s server failing completely. It would therefore be wise not to leave your returns until the last minute. If you do have a professional adviser then make sure all your papers and records have been provided if not by yesterday then at least within the next week. Remember that no return preparer can make any guarantees to submit returns timeously as we get close to the deadline.

Monday, 1 December 2008


Only a few weeks ago I complimented the local office of HM Revenue & Customs on their prompt response to a request. The lady in question definitely earned Brownie points.

A couple of weeks ago I telephoned the agent's line of our local tax office to ask for a print of a subcontractor's earnings for 2007-08 from their records. As I told the person, this was not to circumvent the proper checking of our client's records and paperwork, but as an added check because at the beginning of the introduction of the new scheme in April 2007, some main contractors had not got their acts together. This was to the detriment of the subbies and to my client.

Anyway, I was told to send in my request in writing. Fine. A bit of extra time taken up but I complied, of course. I have now received a letter from “Customer Operations” saying basically that we have to go back to the main contractors first (whose records we know were not straight otherwise we would not be asking) and only then would HMRC be able to help because “complying with such requests is very time consuming and resource intensive for us”.

Really? Under the old scheme it was a question of a couple of key strokes. Is the new system so much poorer? It was supposed to be better. How much more resource intensive would it be to help me out than pressing the buttons to churn out a standard letter on two pages declining to help?

The letter also makes a threat of a fine of £3,000 for subcontractors who do not keep adequate records. Well, if you are a carpenter working all hours and not computer literate and you rely on your performing arts coach wife to keep the records (and I think she does a more than adequate job in the circumstances) what is the point of sending out a nasty letter like that? The point is that if we were not taking adequate care we would not have asked.

I thought our task was to work together to ensure the taxpayer (customer) pays “the right amount of tax”. This letter is from Customer Operations and if you received a letter in similar vein from a commercial business you would be complaining to the Office of Fair Trading. 

The fact is we are not customers. If we were we would take our business elsewhere. If HMRC knew how to deal with the public properly and how to cut costs in the right places we would not be receiving letters like this. Old timers like me remember when you could always speak to someone who knew what he or she was doing within the walls of the old Inland Revenue, and if IR needed some information or a detail to complement a tax return, they would telephone us and get it sorted out.

For a long time there have been regular meetings between tax practitioners and HMRC under a programme called “Working Together”. I really wish HMRC were serious about this, but sadly they just don't get it. It's pathetic!

Friday, 28 November 2008

Exorcising ghosts

Whilst on the subject of Hamlet's father's ghost, in my post “As ye sow” on 13th of this month, I mentioned the spectre of income shifting legislation and was worried that it might be sneaked in whilst we were looking at the drastic measures being introduced to save the country from ruin. No, it's not funny.

In the PBR we were told:

"The Government firmly believes it is unfair to allow a minority of individuals to benefit financially from shifting part of their income to someone else who is subject to a lower rate of tax, known as income shifting. The Government has consulted on this issue but, given the current economic challenges, the Government is deferring action and will not bring forward legislation at Finance Bill 2009. The Government will instead keep this issue under review." 

I explained a year ago how fundamentally inequitable such measures would be – see here.
My sources tell me that the Treasury and HM Revenue & Customs think that implementation of any such legislation is impractical and too expensive to administer. Phew, what a relief! I hope it's true.

A hard taxing week, Horatio!

Readers of this column know that I am not a great fan of the Government’s economic and taxation policies, so may well be expecting me to take another swing at the Chancellor and his organ-grinder boss. However it is true to say that my disappointment at the content of the Pre-budget Report given last Monday by Mr. Darling is not because I would oppose any of his policies on principle, but because I truly believe that the measures announced are not the right ones, and that they are again treatment of the symptoms of the economic malaise, and not of the underlying cause or disease.

There were announcements of increases in benefits such as Child Tax Credit from January instead of April, and additional earlier payments to State Pensioners, and this type of thing does put money into the economy, though it will very likely have to go towards higher fuel costs compared with this time last year, and help pay off any overspend at Christmas. However, the disappointing reality is that many people are very hard up and pretty much all the increase in benefits is likely to be mopped up.

Of course there is the very tight squeeze on credit following on from the banking crisis, and I am not going to rehearse the background to this other that to say it might have been a lot less serious if the Northern Rock crisis had been addressed properly in September 2007 when it came to a head, and not at the beginning of 2008. There is however a shortage of money to spend, which is why I am confused as to the thinking behind cutting the main VAT rate from 17.5% to 15%, albeit in time for Christmas, with a guaranteed rise in Employers’ and Employees’ National Insurance from 2011. Naturally the latter rise will raise billions towards the borrowing the Government has embarked on to spend its way out of this mess but to me it highlights muddled thinking.

We all agree that there is not enough money being spent to keep the economy going and keep people in work. However, surely the cut in VAT on what will be largely imported consumer goods relates to voluntary expenditure which people anyway are reluctant to make. It might save a few retail jobs in Currys (though DSG are not doing so well) but what people really need to spend money on is food and fuel. Food is zero-rated for VAT purposes and domestic fuel and electricity keeps the 5% rate. I suppose the thinking is that people will spend money on those things because they have no choice, but the logic behind increasing the duty on vehicle fuel to compensate for the VAT cut makes not much sense even in a twisted green world. What it will do is increase the price of food because it will be an extra expense on the food retailers who could recover the input VAT but not the fuel duty.

The decrease in VAT on the imported items will be offset by the higher import costs because of the decline of the pound as a result of the economic downturn, so in cutting the VAT rate, Mr. Darling bears more than a passing resemblance to Don Quixote. Not a pretty sight!.

What scares me is the terrible price we are going to pay. The VAT cut will be very expensive for the Exchequer, and will be one reason why the NIC rate is going to go up in a couple of years if Mr. Darling has his way. The fact is that tax does have to go up, but as NIC is such an easy tax to manipulate I am at a loss to understand why it has not been used as a tool now.

If instead of cutting VAT, Mr. Darling had cut NIC at least for next April that would have given most employees and immediate boost and if Employers NIC had been cut that would have been a help to the cash flow of small businesses who are still the backbone of the economy, even if the Chancellor does not understand them. Oh, yes, losses can be relieved back three years now for tax purposes, but many small businesses cannot sustain losses for long in this climate and any sole trader with significant losses would most likely be stacking shelves in Tesco (not that isn’t an honourable job) rather than soldier on with negative money for any length of time.

The trouble is that for small business it is on the whole jam tomorrow. Small companies have to make the losses and wait for repayments down the line; it does not help them now. Never mind, the corporation tax rate for any small company making a profit next year is staying at 21% in April rather than rising to 22% as had been intended; a year’s reprieve. Now, only a couple of years ago the rate was 19% and I have never read any justification, official or otherwise, for the increase in the small companies’ corporation tax rate. Increases in allowances for plant etc. are generous this year and the ongoing rates are also reduced, but they assume that companies have money to spend. If they do, they had best spend the money on marketing, because there are opportunities still if business owners remain positive.

I just wish that the Chancellor and his cohorts had thought about the real world, not cutting taxes on imported goods that may be out of our price range now anyway. You cannot pull money out of people’s pockets to spend it on what they don’t need if the money isn’t there. We need early concerted action to cut the cost of all our mortgages (surely the banks want to retain control over their destiny rather than succumb to what John Prescott called Old Labour policy c 1947) because that is what is needed to help revive the economy. Otherwise the whole “cash injection” looks misdirected. An NIC cut would have been so useful, and more immediate than the VAT effect (if any) even if it could not happen until April.

I guess the lesson is that it is more important to be doing something positive than to jump about appearing to be doing something. I say this more in sorrow than in anger, because I would love the Government’s strategy to work for all our sakes. I just fear that we will pay the price without ever seeing the goods.

© Jon Stow 2008

Friday, 21 November 2008

Government and Data Protection - Security, schmecurity?

Last year’s membership list of the British National Party has leaked into the public domain and there will be many politicos who will take great pleasure in leafing through the names to embarrass certain individuals. At the same time there is a great deal of schadenfreude amongst senior politicians. In political terms this is understandable, and few reading this (and the writer) will have any sympathy for the views of the BNP, though in some ways their political ideas seem anachronistic as well as unpleasant.

The Home Secretary, Jacqui Smith, succombed to political temptation on air in saying that members of the Labour Party would not mind having their names published. I doubt she had polled them all in advance and membership of any political party is often considered a private matter by the individual concerned. Ms. Smith finally conceded “everyone had the right to protection under data protection laws but it was up to Dyfed-Powys Police whether to take the matter further.”

The Home Secretary’s relaxed attitude is in a context where so many businesses in the professions and otherwise have to hold a licence to keep private data on pain of heavy fines for any leak. I myself was at a presentation on this very subject a couple of weeks ago, yet even in the wake of the loss of the entire Child Tax Credit database, information about prisoners, details of military personnel, their families and new applicants to the forces still the Government and its staff do not seem to take the matter seriously. We know that important data has been lost, even though there is no need to carry it round on a laptop. If you “found” my laptop you would find there would be no data about my clients whatever, though you could possibly read my “raw” blogs if you were that patient.

Anyway, data protection is not that hard as long as everyone knows there is a policy and is careful with their memory sticks. However, Jacqui Smith’s off the cuff remarks were unhelpful and do not inspire confidence in the Government’s turning over a new leaf in its approach to data security. Security, schmecurity?

Thursday, 13 November 2008

As ye sow...

It is always difficult to write in advance of the Pre-Budget Report, though we understand that it will be happening shortly. In some past years the PBR has been in October, but the Government would say it has had other things on its mind; in other words the “credit crunch” and the apparent impending recession. Of course, it depends on what business you are in as to whether you think there is a recession now, and the effects will bite on different people and businesses at different times. However, clearly the collective spending power of the nation will be affected.

The delay in the PBR is we assume because the Government is thinking about what measures it can take to address an immediate problem. Normally the twice yearly Budgets we have got used to take a longer term view. In the meantime we have been left with the spectacle of the Bank of England desperately cutting lending rates in an attempt to kick start the economy or at least relieve beleaguered mortgage holders (most of us) and ironically stimulate the housing market. Of course this points to a good part of the problem. Anyway, the Bank says it is cutting rates as it has most recently with a 1.5% reduction because it has calculated that inflation will fall below 2% anyway, whilst we understand that the economy may shrink by half a per cent a least in the next year; maybe more depending who you believe.

It is nice that the Bank has remembered that it was supposed to be using the interest rate tool as a way of controlling general inflation. In recent years it has wound the rate up in order, it said, to control house price inflation specifically, whereas before about four or five years ago it seemed to look at the general inflation rate, which is what we understood was important. Indeed it was important, and therein lies part of the damage that has been done. The general lending rates for business are what has caused a good deal of damage to the economy underneath whilst the Bank has been looking at house prices, and now, surprise, surprise, businesses are struggling. Apart from the construction industry and retail sales fueled by easy credit, those of us out in the real world know that the business environment has been slow for about three years because of the lack of genuine spending money in the economy..

The Bank of England, in increasing interest rates over the last couple of years has of course been treating the symptoms of the disease, house price inflation and consumer spending, rather than curing the disease, which has been the ridiculously easy credit available. Of course mortgage lending regulation had been hived off to the Financial Services Authority, an impotent and useless quango as we know form their failure to regulate properly the pensions industry, but even so one would have thought there might have been some dialogue. Of course it would not have saved the US sub-prime market from coming to grief, but we might have been much less badly off in the UK if people had not been defaulting on mortgages they could not afford and never should have been given in the first place.

So where does this take us on the tax front? Business does not react well to jam tomorrow, so any new stimulus to spend money such as a hoist in capital allowances will not help in the short term, any more than a cut in corporation tax for small businesses (or delaying the current locked-in increase to 22 %) would help us now. The Government has already painted itself into a corner even with the current level of borrowing. Remember also the fiasco requiring the Chancellor to increase the individual personal allowance for 2008-09 to compensate basic rate taxpayers for the loss of the 10% rate band? Will this have to be locked in for future years at further cost to the Treasury and us when the chickens come home to roost and the borrowings have to be repaid?

A quick stimulus to the economy has to put money in people's pockets now. Anything of this ilk will be very costly indeed. What would be most effective would be a cut in Employer's National Insurance because this would help business now. Schemes such as the Conservatives' idea of cash to business to employ the longer-term unemployed might to a degree be self-funding but even this will have a delayed effect.

Anyway, the Government and Gordon Brown are now reaping what they and the Bank of England have sown. In the end, we shall all have to pay. What really worries me is that MPs and the financial press will take their eyes off the ball when it comes to the Pre-Budget Report and the Chancellor will sneak in something nasty, such as a revised attack on family businesses with the income-shifting proposals we saw this time last year as a reaction to the Revenue defeat in the Arctic Systems case. Such a thing would hardly lift the mood and sentiment in small businesses, but the Treasury hitherto has not understood the reality on the ground, and is unlikely to now in the light of a “painting over the cracks” Mini-Budget.

© Jon Stow 2008

Sunday, 9 November 2008

Funnily enough....

Whilst we complain about the time it takes to process tax returns, I asked the local HMRC office recently to process a Form 64-8 authority for my firm to act, and issue a new reference number. They turned it around in a week. Well done, and take a bow, South Essex Area! Sefton, take note.

We need to remember most of the inadequacies of the Revenue are not the fault of staff we deal with day to day. They do their best. Mind you, please don't call us customers. As if we had a choice....

Monday, 3 November 2008

Ulterior motives and deadline woes

Well, the deadline for submitting paper tax returns for 2007-08 has passed with Halloween, and with it the Government’s trick or treat. The trouble is that this messing around with deadlines really is a trick. We have until 31st January 2009 to submit Self Assessment Returns online, and the real reason for the earlier deadline for submitting paper ones is to force online submission to save costs. HM Revenue & Customs probably hoped that people would not get their acts and papers together by the end of October, and would be forced to investigate the online process, either doing it themselves if computer literate, or otherwise having to employ an agent. Then they will be locked in for the future to the online system.

Now, as an agent this will bring me more business, but the truth is that HMRC have got their cost cutting in early; they have already cut so many staff and are so short of resources that they take a long time to process paper returns. It is known that the Sefton office in Bootle is months behind in dealing with paper returns. Even where returns have been submitted for several back years following discoveries by HMRC of possible undeclared income, they are still taking weeks and months to compute liabilities. They used to be so hot on that, but trained staff who understand tax technicalities are in short supply in HMRC.

I feel very sorry for the staff that have to answer the phones. None of them knows anything about tax and consequently each has to take a lot of flak. We are not allowed to talk to those who actually understand and do real case work.

The deadline change for paper returns suggested by dear Lord Carter was just a ploy to get returns submitted online and get the Revenue computers to do all the work. Yes, it saves taxpayers money but it does not help the older taxpayers or those who are not used to computers; in the main it will cost them money to have their tax affairs sorted out.

Has the Government and HMRC been entirely honest about this?

Thursday, 24 July 2008

That reminds me...

Mark Lee explains here (it's a PDF)why he gave up giving tax advice.

A bit over a year ago I met Dave Hartnett with other Essex-based tax practitioners, and was disappointed by the degree to which he saw all of us as the enemy. There seemed almost a paranoia that we were all trying to do HMRC out of tax which was rightfully theirs. In reality, mostly what we do is ensure proper compliance by our clients and prevent their paying to HMRC more than is rightfully due to HMRC; these are entirely different matters.

I find repressing the Stalinist attitude in modern government when the goal posts are constantly moving and there is legislation on the hoof like some sort of Band Aid culture rather than a serious attempt to make the whole environment of law making better. True, there are consultations, but then the feedback is usually ignored and the Government departments go ahead with their original proposal. I wait with trepidation the next dog's-breakfast proposals on income shifting. The Treasury is like a dog with a bone in that it will not leave impractical and unfair ideas alone. We are bound to have another ill-conceived attempt in this area.

Saturday, 28 June 2008

Tax Returns and Crimewatch

People in my business have been wrestling with a problem outside our control for the last couple of months, and that relates to Tax Returns. For a few years, now, HM Revenue & Customs (as it now is) has been encouraging everyone who files tax returns to “do it on-line”, and especially tax agents such as my firm. This will be the fourth year we have filed clients' tax returns on-line, and by last “tax season” nearly all the problems had been ironed out. Most agents use third party software to file on-line, as the Revenue's own system is very cumbersome and involves everything being entered whilst connected to the internet, and with an irritatingly short time of inactivity before one has to re-log in. Those agents involved in the last mad rush on 31st January 2008 had little difficulty in filing on-line as their data transmissions went through even though the server for the Revenue's own filing software crashed on the vital day. So of course, we agents were reasonably happy, though we could not at that time access details such as what our clients had paid on account.

However, HMRC had commissioned a report from Lord Carter (see here) as to how things should be done in the future. There have been changes because of representations mainly by the professions involved, but as a result of this, paper personal tax returns have to be done by October this year though the last filing day for on line returns is still 31st January next.

One curious recommendation which has stuck is that all facsimile returns have to be in the Revenue's own PDF format so that paper ones can be scanned in using OCR. One can see the point if we are posting paper returns, but actually we are supposed to transmit the details electronically, so the logic defeats me. Anyway, what has happened is that the returns have been completely redesigned to fit the paper PDF format so that the facsimile returns we agents used to send to clients for approval are no longer acceptable to HMRC (even though we used to PDF them anyway). Consequently this has meant a complete rewrite of the software by the third part providers. Well, that's their job of course, but who ends up paying for this?

Anyway, the software people have done pretty well, but guess what? HMRC's software for processing the on-line transmissions has all sorts of problems, tax returns are getting rejected for no sensible reason and time is wasted by agents on the telephone to their software support people who are swamped. One of the most stupid errors is that the tax return says that if sole traders have a turnover of less than £30,000 then they do not have to detail their expenses but just lump them in one box. However, HMRC will reject a return done on-line on this basis even though one is following the instruction to the letter.

It all seems to be change for the sake of change, or a result of that other bugbear of corporate and government-speak “modernisation”.

This bring us to Crimewatch, the June episode of which was shown on BBC1 this week. For years it was presented from a studio by experienced broadcasters and whilst a little formulaic it held interest because of the material but also because of the attention to continuity and minimal distraction. So, some bright spark at the BBC obviously decided to “modernise” it, get rid of Nick Ross probably because he was “old”, and change the compelling and considerable journalist Fiona Bruce for Kirsty Young. Not content with that they have scrapped the studio and present the programme from some sort of warehouse with scaffolding and gantries as furniture, they cut between various non-professional broadcasters who are or were police officers but don't know how to talk to a camera, and keep having different segments by these people in different parts of the warehouse. Poor Kirsty Young, an experienced broadcaster herself stumbles round this dark edifice and at times seems as bemused as many of we viewers at home. The programme could be interesting if the content were well presented, but its earnest production is not entertainment and some of us are going to switch off.

My lesson for the BBC and for HM Revenue & Customs? If it ain't broke..........

Saturday, 14 June 2008


Most people probably have only a vague understanding of the meaning of the word "domicile" and even fewer realise that it is a distinct legal concept, and one which may affect a number of people considerably in determining the amount of tax they pay.

So, what is domicile? Domicile is essentially a legal concept which is also recognised in those countries who have inherited their legal system from Britain, and that includes the USA in this case. It is something everyone has, that one is born with, and is hard to change. Domicile is normally determined at birth, and for UK purposes in most cases it is inherited from one's father. It might not be the country in which one was born, but the country which one's father considered his permanent home. In the case of a person who was illegitimate or whose parent's divorced during his or her minority, there may be different factors to be considered.

Partly for historical reasons and partly to recognise continuing minor variations in the law to be applied, no one is actually domiciled in the United Kingdom; rather a person may be domiciled in England or Scotland, for example. The concept is enshrined in long-standing case law and does not always sit well with the equal opportunities climate.

It is possible to change someone's domicile with a good deal of difficulty if that individual severs all ties with the country of domicile of birth, establishes a home in a new country, perhaps buys a grave plot there and spends many years in the proposed country of domicile of choice. Unfortunately, when people become older and their health deteriorates, they may come back to their domicile of origin (the one they were born with) for treatment and ruin everything. Dedication is needed.

At this point you are thinking, "Could this affect me?" Well, for those who have domiciles abroad but who are resident in the UK, they have hitherto had the opportunity to pay much less tax in the UK than the rest of us, but they may not have realised it. "Unfair!" you may cry, but nevertheless it is true. Anyone in this category should speak to an adviser about back tax years and whether a repayment of tax might be in the offing.

However, the law changed in April 2008 and anyone who thinks he or she might be resident in the United Kingdom but not domiciled in a UK country may well be affected and should seek urgent professional advice because the UK tax regime will become much harsher.

In the simplest terms, prior to April 2008 a UK resident non-domiciled individual was not taxed in the UK on income and gains arising abroad but not remitted to the UK.

Unless such individuals are prepared to declare and be taxed in the UK on their worldwide income the new rules from 6th April 2008 impose an annual charge of £30,000 on non-UK domiciled or not ordinarily resident individuals who claim the remittance basis of taxation, if they have been resident for longer than seven out of the past 10 years (unless their unremitted foreign income and gains for the tax year in question are less than £2,000).They remove income tax personal allowances and the capital gains tax annual exempt amount from those who claim the remittance basis (unless their unremitted foreign income and gains are less than £2,000). As I said, this is a brief summary. There is a lot more to it than that.

There is a need to plan for the future. We all know business owners and others living in the UK whose families originate from the Commonwealth, mainland Europe and North America and perhaps from elsewhere. They may have been born within UK shores, but their fathers may not have been. The law rubs both ways. Given that those of us who are domiciled within the UK might have a hard job convincing the Inland Revenue of our overseas domicile even if we have lived in Marbella for 20 years, so someone whose family is from Hong Kong may still retain domicile there even if that person has been in business in England for many years.

The above is only summary of the current situation, which is actually quite complex, and it is believed to be correct at the time of writing. To reiterate, if you believe this issue affects you or may do in the future then you should seek professional advice.

© Jon Stow 2005, 2007, 2008

Post-holiday blues

I have been a bit quiet of late. You could understand that a number of developments in the UK tax world have pretty much left me speechless. We have had the Budget, largely flagged in advance with the capital gains changes etc. but the income-shifting fiasco has been put on hold. Unfortunately it is not a dead duck and will reappear not much changed, I suspect; a serious canard if ever there were one.

We tax advisers have a job squeezing our holidays in these days but we managed a couple of weeks in May in the steam room that is Florida at this time of year. Whilst I had my back turned, Darling had another Budget to compensate those who lost out from his organ-grinder's announcement of the abolition of the 10% band – well, one of them – in the 2007 Budget. Everyone knew about what had happened last year, except apparently the Government's own MPs. The give-away will apparently cost the Exchequer £2.7 Bn. This will be why the Government probably secretly welcomes the high oil price, at least in the short term, because of all that lovely extra tax it is collecting. After all it cannot really borrow any more, can it? Oh, well, I expect you are right.

Anyway, time is money for businesses, so I am especially upset at the problem we are having preparing and filing Self Assessment Tax Returns on-line for 2007-08. I said at the end of last year that the HMRC on-line system was much improved. So what happens? Wholesale change at the behest of Lord Carter and all the work and progress over the past few years has gone out of the window. I have lost time with the software not working, my supplier is over-stretched and work is not getting out of the door as I would like (any of my clients reading this need not worry; they will still get the same good service but it is just costing me more at the moment). If it ain't broke.....

Wednesday, 27 February 2008

Stinking fish!

Like all of us here I am sure, I detest tax evaders, those who fail to declare their taxable income and gains yet enjoy the services that the rest of us pay for in the United Kingdom. HM Revenue & Customs have the moral high ground on this issue, and I applaud their stance in pursuing those individuals who are evading tax and might as well be taking the cash from our own wallets and purses for all the difference it makes in moral terms. Anyway, I hope that my position is clear.

However, we now learn that HMRC has paid £100,000 for information stolen from a bank in Liechtenstein by one of its now former employees. It seems HMRC thinks this is in order because other countries may have done the same. The trouble is that such payments for illicitly come-by data put us all at risk because more employees with an eye to the main chance will look for a quick profit by selling data about any of us, and who is to say that the purchasers will be only the Treasury or other Government bodies here or abroad. I know what HMRC’s own attitude would be if the two missing CDs containing the names, National Insurance numbers and bank account details of Child Tax Credit claimants were sold by one of their employees or indeed any individual.

I believe that if you take the moral high ground to which you are entitled you must avoid moving to the slippery slope where you are not a great deal better than those you wish to catch in your anti-tax evasion net. Receiving stolen property is an offence, isn’t it?

Of course, if HMRC had come across the information without paying for it, we might take a different view. I remember when I was about nine being found in possession of a girly pin-up magazine. “Where did you get that?” asked my mother. I replied truthfully “I found it in a puddle outside the railway station on the way home from school.” Not guilty, as would HMRC have been (in my view) had they been sent the information unsolicited.

As it is, I believe HMRC have let themselves down and the rest of us also. I smell something unpleasant. Is it just me, or do others feel the same way?

© Jon Stow 2008