Entries from February 2006 ↓

We’ve probably all come across the ever increasing level of red tape these days, particularly when it comes to the UK taxation system.

Now, an independent study says the country’s high tax burden is costing the UK economy an extra £138bn a year in lost wealth.

Until this increasing bureaucracy trend reverses we can expect morale and productivity in the UK to continue to decline.

Hopes of an early rate cut in 2006 were dashed on Thursday when the Bank of England announced that its base rate would stay at 4.5%.

We see this more as a delay in an interest rate cut rather than the start of an upward trend.

Rates have remained at 4.5% since August 2005 when they were cut from 4.75%.

The house price boom over the last few years now means that one third of UK households have to worry about inheritance tax.

Inheritance tax is charged at 40% when someone dies with wealth in excess of £275,000.

Tory shadow chancellor George Osborne was reported in the Daily Express as saying: ‘Inheritance tax has become the latest stealth tax imposed on hard working families. Millions of people who are not rich in anyone’s eyes are being drawn into the tax net due to the way Gordon Brown has played stealthy tricks with inheritance tax thresholds.’

As we always say, “the sooner you start your tax planning the more tax you will save”, i.e. don’t leave it until you’re on your death bed!.

A lack of tax incentives in the UK have meant a film about the Loch Ness monster will now be made in New Zealand rather than Scotland.

The Government has recently reduced the tax incentives available to the British film industry in an effort to reduce tax avoidance.

Whats next? A remake of Mary Poppins with Kiwi accents?!

HMRC has announced that the official rate of interest, for calculating the taxable benefit of cheap loans from employers, will remain at 5% pa. This rate should be in force for the whole of the 2006/07 tax year although, in exceptional circumstances, HMRC has the power to change the rate during a tax year.

The taxable benefit is the officially calculated interest less any actual interest paid by the employee. However, HMRC turn a blind eye if the maximum loan during the year was less than £5,000.

Want to get the Taxman to pay for your holiday?! If you organise a business trip that just happens to be in a nice exotic location it can be done.

As long as the primary reason for the trip is business (e.g. meeting customers or suppliers) the travel and accomodation costs should be tax deductible. The fact that you also find some time to relax in the hotel pool is irrelevant, although it may be an idea to keep an itinerary to prove to the Taxman the business element of the trip.

Start looking out for business conferences being held in the Bahamas!

Following a European tax case in 2005, the VAT man has recently changed the law which enables businesses to recover the VAT on fuel used by its employees. The only real change is that businesses now need to keep receipts for the fuel to cover the amount of VAT being claimed.

So remember, when filling up, to ask for a VAT receipt.

If you have not been claiming this VAT back in the past you can still make a claim on your next VAT return for the previous three years of fuel you have used. This can be based either on actual fuel consumption or the VATman approved fuel rates.

The Taxman will try to deny tax relief for the costs of websites. Read on and we’ll tell you how to justify a claim for these costs.

The Taxman will argue that the web site is an electronic shop window for your business and thus is a capital asset. He will then deny tax relief on the basis of tax rules for capital assets.

However, your starting point should be the accounting rules rather than the tax rules when deciding how to treat your website costs. These rules (UITF 29) state that you cannot capitalise the costs if the website will not generate direct online sales of your product. So, if you do not partake in ecommerce you should write off the costs of the website immediately which will mean a tax deduction automatically follows. Hence the cost is not capital and you can tell the Taxman that the tax rules for capital assets are a non-starter!

Record numbers of tax returns were filed online by the 31 January 2006 deadline. HMRC reported that nearly two million 2004/05 returns were filed online out of the 9.8 million that were issued.

At least we didn’t have the same debacle as last year when the online filing system completely crashed in the run up to the 31 January 2005 deadline. We suspect that many accountants wanted to file more returns online but unfortunately HMRC has been a bit slow at processing new clients onto the online system. Still, there’s always next year!

The Tories have thrown their hat in the ring over the Arctic Systems case. Mark Hoban, the shadow financial secretary to the Treasury is questioning why the Taxman is not paying the costs of both sides at the forthcoming House of Lords appeal.

Usually HM Revenue & Customs will pay the legal fees on any test case. Whilst the accountancy profession acknowledge that Arctic Systems is one of the more important test cases to be brought recently, it seems that HMRC are not so sure and thus are refusing to pay the costs of both parties.