Stirring the pot

I watched with interest the interview on the Accountancy Age website with Dave Hartnett, Permanent Secretary for Tax about the New Disclosure Opportunity (NDO). To quote HMRC,

“the NDO will allow people with unpaid taxes linked to offshore accounts or assets to settle their tax liabilities at a favourable penalty rate. It will run from the 1st Sept 2009 until 12 March 2010.

If you have unpaid tax linked to an offshore account or asset to declare, to benefit from the terms of NDO you will need to notify us AND disclose (tell us the details, calculate the amount due and make a full payment) within a set time limit.”

There will be a specific lowered rate of penalty for those coming forward under the scheme. It is not an amnesty in that tax, interest and penalties will have to be paid; it is simply that the penalty will be fixed at 10% unless people had a letter from HM Revenue & Customs under the original Disclosure Opportunity and passed it up, in which case the penalty will be 20%.

The original opportunity for those with undeclared and taxable offshore income to come forward was in 2007. This followed legal action through which British banks holding their customers' money offshore were effectively obliged to disclose details of the relevant accounts as they have done for many years in respect of UK based accounts. HMRC wrote to the bank customers they thought might have undeclared accounts. This time round, HMRC will write to many more people since they have information from many more banks.

In the interview, Mr. Hartnett admitted that he had no idea of the number of people would come forward or the amount of money which would be recovered. This was an honest reply. We only gleaned that he thought it would be more than under the previous scheme. Pressed on the criticism that the earlier campaign was under-publicised he said that around £1M would probably be spent in advertising and initiatives. I wish HMRC luck with this trawl and will have no sympathy with those continue to evade tax. I will be happy to assist anyone who wishes to come clean.

The NDO is not the only trawl in which HMRC is currently engaged. Many possibly non-tax payers or marginal taxpayers will have received letters in the last couple of weeks asking whether they should still be receiving their bank interest without deduction of tax.

Those recipients I know about actually receive their interest net of tax (and pretty paltry interest it is at current rates), but although some have been happy just to refer the printed note to me, one very elderly lady became convinced HMRC were after her and would take away her pension. That second reaction was extreme, but I cannot help thinking that the distress caused be this second mailshot to people on low incomes will far outweigh the concern of the generally much wealthier recipients of the NDO letter. I am not sure anyone in HMRC will have thought about that and I am sceptical that any significant tax will be raised by this mailshot to the poor and elderly.

© Jon Stow 2009

A week of curiosities and a valuable reminder

It has been a strange week. On Monday I went to see a client to collect his tax papers, only to find that they were in a locked cabinet to which only his wife had the key, and she was out. It was a short meeting as a result, and I did wonder why my client had not telephoned to save me the journey.

Two less eventful days ensued, and I went to my monthly local meeting of tax practitioners on Thursday. “Tell me, everyone” I said, “what do you guys do in the way of marketing?” Six faces looked back at me blankly. “Marketing? We don’t do marketing. We don’t need to because we always have enough to do.”

I was amazed, and actually even felt a little foolish for a moment. After all, I spend quite a lot of time marketing. I have one local targeted ad, and apart from that I work on my website, my blogs, the social networking sites, Twitter and face-to-face networking. All this results in work coming in, which compensates for the occasional client of mine who finds it necessary to dispense with my services. There is always some attrition. When people leave me it never seems to be because they have gone off my firm or its service. People move and like someone local to look after their tax affairs, or they sell up everything and move abroad.

How do my colleagues not have net losses of clients? It can only be because they are longer established than me (a mere seven years) and get plenty of referrals without looking for work, or they are good at client stickiness and find it easy to keep their revenue from each increasing year on year. I admire that, and am even envious though I worry about their complacency. Apparently any sort of networking is alien to their natures. I enjoy it and it gets me out, gives me a chance to feel useful in connecting people, gets me work and avoids the loneliness of some small business owners.

I went back to the office to puzzle over an email from a client’s wife. “I haven’t time to send you my husband’s papers so that you can do his tax return as we are going on holiday for the whole of August and we need his refund by September”. Now, hang on, she lives a long way from my office and I cannot easily take the ferry to do my customary house visit, but we have broadband and live in an electronic age; hence the email. Said lady then goes on to ask me how to fill in the Return by requesting a technical calculation for last year. I answered her question of course, and wish her the best of British with the Foreign and Non-resident pages which are hardly logical even to us professionals (we always seem to have to do work-arounds to get them to make sense). I have not had a response to my somewhat injured one, but am not holding my breath. Needless to say I advised her that if she sent me the information she could have emailed copies of the Return and accounts for approval easily by the end of July. It would be inconvenient but I will always try to be flexible to meet my clients’ needs. I am not holding my breath, though.

Late on Thursday, I saw another new client for the first time. It turned out his previous adviser had died, and no one seemed to be running the practice now. I think the accountant was unqualified but nevertheless may have been very good at what he did. The client had obviously found his service good. In these tragic circumstances it is a reminder that we should always allow for someone to take over the reins of our business if we become sick or die suddenly as this guy did as a result of an accident. We owe it to our clients and also to our families as it is better to have a saleable business as a going concern than a business which is as dead as the owner.

If not lessons, I feel I have had some useful reminders. I must check that my nominated successor is still happy to run my practice in the event of my incapacity as I have directed. I will call her to check.

Blearsy-eyed!

We read here that Hazel Blears is to pay £13,332 on the sale of a second home. How is she going to do this? Presumably her accountants or tax advisers got the documentation right so that she successfully avoided a liability by making the appropriate election. The only way she can get HMRC to accept the money is by saying she made an error or worse, deliberately misled them. She will not be happy if they charge interest and penalties in addition to the CGT.

Perhaps she thinks the way to pay this voluntary tax is to just send a cheque. If HMRC cannot match the amount paid against a current liability, they will want to just send the money back. Remember that following the change in treatment of offshore income received by non-domiciled residents in UK, advisers on US tax told their UK resident clients that they should pay their tax due in the UK on US and worldwide income received in the period 6th April to 31st December 2008 before the end of December 2008 so as to have it matched with and set off against US tax due for 2008. The problem with this was that UK tax would not have become due before 31st January 2010, and HMRC's reaction was to try to repay the tax, thus defeating the object. Does Hazel know something we don't, or is this just political expediency without worrying about the consequences? I can guess, but answers on a post card please.

Update 14th May

Hazel Blears might have read my blog yesterday! I heard on BBC radio this morning that because HMRC would not be able to accept a cheque if they could not allocate it to a known liability (given that she has done nothing that she was not legally permitted to do), an official from HMRC was summoned to Westminster last night to accept the £13,332 on behalf of the Public Purse. I think it might have been better used if paid to a charity for the homeless. This is gesture politics at its worst, and really, you couldn't make it up, could you?

Have you submitted your Tax Return yet?
On our bikes
Exemplary Consulting for Business Support
Follow me on Twitter

Render unto Caesar...

One of the problems we tax advisers have is in dealing with people, generally as prospects, who simply don't want to pay any tax at all. Somehow, the current climate of cracking down on tax avoidance (legal) as well as tax evasion (illegal) seems to have passed by these people. Usually they go further: “Why should this Government get their hands on this money? I did not vote for them. They won't spend it wisely. It is immoral how much they try to take.” Now many of us have these sentiments, but those of us who are law-abiding and understand the law (which is the overwhelming majority) grin and bear it and pay our taxes.

There are ways of tax avoidance, and these days I find myself felling uncomfortable with aggressive contrived schemes, none of which I have recommended in recent years. Of course there are tax shelters we can all use, such as various types of pensions, ISAs, National Savings Certificates and Premium Bonds, to name but a few of the obvious approved devices. Let me know and I will find you a good IFA.

Every now and again though, these people of the alternative persuasion turn up. They may be ageing hippies come into money, or ageing hippies or anarchists who suddenly have an expectation of money, although no doubt they condemned the rich and their wealth when younger. Now some money might be about to fall into their hands, inherited from their careful parents, or from some capitalist scheme in which they are involved, or from damages they expect to get through the blame culture because they feel wronged, and suddenly it is a different game. The name of the game is greed, avarice, call it what you will, and their twenty-year-old selves would have been shocked if they knew what they would become.

I talk these prospects through their options, which for UK-based people with UK-based family histories are fairly restricted, they get all upset at not being able to keep all their money, and they spurn my preliminary advice because it is not what they want to hear. I never hear from them again, and to be quite frank that is a great relief.

“Render unto Caesar the things which are Caesar’s, and unto God the things that are God’s”

Have you submitted your Tax Return yet?
On our bikes
Exemplary Consulting for Business Support
Follow me on Twitter

Domicile......again

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 6^th 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

Domicile puzzles

Then again, what are we to make of the so-called reforms relating to the taxation of non-domiciled residents in the UK? This was one of the policies the Government has pinched from the Tories following the policy announcements at the Conservative Party conference. The Tory proposal proved that the Government does not have the monopoly on misguided (did I hear you say daft?) policies. So why borrow this one except to trump the Opposition?

During its ten years in office the Government has discussed several times changing the rules concerning non-domiciled persons, which in simple terms are those whose background or family history might suggest their natural homeland is not one of the countries comprising the United Kingdom. For a more detailed explanation see here. A study was made in 2005 and there was a consultation, but we had started to suppose that the Treasury saw the whole issue as a political hot potato.

Briefly, unlike domiciled resident individuals who are liable to UK tax on their worldwide income and capital gains, non-dom residents have up to now been taxable on their UK income of course but not their overseas income and gains except to the extent of the amounts actually remitted to the UK. It had been the view of many that if taxation of worldwide income and gains were extended to non-doms many of our richer guests including oil billionaires would take themselves and their spending power elsewhere; hence there had been no amendment to the rules since the first review was announced way back in 1949.

The new rules effectively bring most non-domiciled residents into a regime of being taxed on worldwide income unless they pay annually to HM Revenue & Customs £30,000 plus whatever tax is due on remittances as before. Of course the super-rich will go for this unless they see this as an unprincipled betrayal and leave the country. Those who will be hit are the non-doms of moderate income who have brought their labour and investment to the UK, perhaps employing people in their factory, workshop or restaurant; those who hope to retire in their homeland or elsewhere. Of course there are long-term resident (seventeen years plus) non-doms who already knew that if they died within the UK their worldwide estates would be liable to inheritance tax.

The Government talks a lot about fairness. One might say that it is not fair that some taxpayers of a particular class pay less tax than others with similar income. Is it fair that the very wealthy can buy off HMRC with a £30K bribe or paying annual protection money? Is the Treasury reduced to acting like the Mafia or an East End gang? Worse, is this not another example of the total lack of coherent fiscal policy? What on earth is going on?

© Jon Stow 2007