Entries from November 2006 ↓

The Pre Budget Report will be issued by Gordon Brown on 6 December at 12.30pm.

The House of Lords will hear the appeal of the Arctic Systems case from 5-7 June 2007.

We are often asked how people can become eligible to sell a property at a profit without crystallising a tax bill. Many people will have heard that if you live in the property for a period you can claim a tax exemption. Unfortunately, its not quite that simple.

The Taxman looks at the following areas as well as the length of time you live in a property:
- did the owner actually live in the property themselves?
- is the property habitable i.e. is it in a good state of repair?
- is the individual registered to vote at the house?
- does the person pay the council tax at the property?
- what address does the tax office have for the person?
- do you work within commuting distance of the property?
- are your more valuable possessions/furniture in the house?
- where do your family spend most of their time?

As a final note we would add that there is no fixed time period whereby you qualify for the tax exemptions but the longer you live there the better.

We hear on the grapevine that the Taxman is cracking down on the claimed private use of business assets such as vehicles and telephones.

If you say your phone is used 20% for private calls, can you prove it? If not, you could be stung for extra tax for each of the last six years - not a pleasant Xmas present! We suggest you keep a sample (say two months for each year) of relevant costs to calculate what your percentage private use is.

For your vehicle, keep a mileage log of all your journeys for two months and calculate the percentage of miles travelled that are on private journeys. For your phone, go through the itemised call list and highlight the private calls so you can calculate the private cost proportion of your bill. Undertake a similar exercise with any other business assets that have an element of private use.

At least then you have some evidence to rebut the Taxman’s assertions that the private use is higher than you say it is.

We understand the Arctic Systems appeal to the House of Lords has yet to be listed for a hearing. This means a decision is unlikely to be published before the 31 Jan 2007 tax return deadline.

In the past it has been extremely difficult for a business to claim back the VAT charged on a car purchase. All the VATman had to prove was that the car is available for private use. Whether it was actually used for private purposes wasn’t a factor. However, recent cases have made this easier.

The case of Philip Shaw illustrates this - a common argument for the VATman was that the vehicle being insured for ’social, domestic & pleasure’. Philip Shaw rebutted this by showing that both his car and his combine harvester were insured for social journeys. Clearly he didn’t use his combine for shopping trips - the only reason for the insurance was that it was cheaper than business only use, i.e. a commercial decision.

The tribunal held that the insurance policy for the car did not preclude the claiming of VAT on it.

See also article #1 and article #2.

The Taxman has bowed to pressure to release some of his secret reports. The first batch has just been published and provides information on what the Taxman looks for when dealing with certain types of businesses.

If your trade corresponds to one of his Tactical Information Packages or Business Economic Notes have a read before finalising your tax return.

Taxpayers will be hit with higher penalties for late self-assessment returns and unpaid tax under a tough new regime set to be announced within weeks. Revenue & Customs has been holding secret talks with the tax industry on ways the penalty regime can be used to plug the £3.6 billion hole in the public accounts. Insiders are expecting the chancellor to unveil the new rules in his pre-budget report due in the next month.

Word is that the Revenue will hike the £100 penalty for late returns to £250. Taxpayers who then find they do not owe any tax will no longer be able to reclaim the fine.

The taxman could also levy higher penalties on people who pay too little tax unwittingly — perhaps because they fail to keep proper records or take advice. In the worst cases, the Revenue has the power to fine up to 100 per cent of the unpaid tax. Someone who underpaid by £3,000 could end up paying as much as £6,000.

Follow this link for information on fines for late tax returns and overdue tax and how the tax enquiry process operates.

Following the abolition, with effect from 1 April 2006, of the nil rate band for corporation tax there was concern that many small clubs and societies, which previously had no corporation tax liability, would have to pay such tax on very small amounts of income and have the burden (and potential cost) of completing company tax returns. This would be particularly harsh on those organisations whose sole income was a small amount of bank interest.

Where the annual corporation tax liability of a club or unincorporated association is not expected to exceed £100 and the club is run exclusively for the benefit of its own members, there should be no requirement to file corporation tax returns subject to review every 5 years.

This practice is also extended to a property management company if it’s business consists of the management, on a non profit making basis, of a block(s) of flats or apartments for the owners, lessees or tenants of the flats or apartments and the company’s articles of association contain rules to ensure only the persons having an interest in the property under management own the shares in the company.

Any club or society that is unclear about its tax position should ask its local HMRC office for advice.