All tax planning needs careful attention to avoid contravening "anti avoidance" regulations and case law interpretations.
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Tax penalty & appeals regime -
We feel the new rules have more clarity on the penalties charged and more relief for innocent error as the new rules include distinctions between innocent error, "careless" and "deliberate" conduct.
Note also the design and procedures for Commissioners' appeal hearings is changed as is their name. They are now referred to as Tax Chambers (NOT to be confused with lawyers who work in legal chambers).
HMRC has received heavy adverse criticism in recent times for failing to counter aggresive tax avoidance schemes and arrangements. The department has pledged to attack such tax avoidance and has introduced a new "General Anti Avoidance Rule" (GAAR) which seeks to define what is unaccepatble tax planning. HMRC has stated that it won't apply this law to "ordinary" tax planning but the wording of the GAAR itself is very far reaching. The government is broke. Who knows what they will do with this tool in the future?
Furthermore, BE AWARE that tax law contains some fines and penalties which HMRC can impose but against which you have NO RIGHT OF APPEAL. In these cases HMRC is judge, jury and executioner. BE CAREFUL
Income tax & married persons/partners - if one spouse is taxable at higher rate(s) than the other consider transferring income generating asset(s) to other spouse. Objective is to put taxable income in the hands of the spouse paying tax at the lower rate(s) and keep overall household tax bill lower.
Civil Partnerships - the Civil Partnership Act 2004 (CPA) created an entirely new legal status of civil partner giving same-sex couples in the United Kingdom the opportunity of acquiring a legal status for their relationship. For tax purposes the Government announced that civil partners would be treated the same as married couples. The tax changes took effect from 5th December 2005. The most significant are as follows:
1. Transfers between civil partners in lifetime or on death are generally exempt from inheritance tax without limit.
2. Only one property owned by a couple who are civil partners, whether that property is owned solely or jointly, may be treated as the principal private residence of either of them at any time for the purposes of capital gains tax "private residence" relief.
3. Transfers of assets between persons who are civil partners and living together will be on a "no-gain, no-loss" basis for capital gains tax purposes.
4. Pension tax legislation is amended so that references to husband, wife, ex-husband, ex-wife, spouse, ex-spouse, surviving spouse, widow, widower will now include civil partner, former civil partner and surviving civil partner under the terms of the Act.
5. There is an exemption from stamp duty and stamp duty land tax for transactions carried out in connection with the dissolution of a civil partnership so that transfers of shares or the transfer of the partners' home from joint ownership into the sole ownership of one of the ex-partners is exempt.
6. Where one of the partners was born before 6 April 1935 the partners will be entitled to an allowance equivalent to the married couple's allowance (see next topic below).
7. Anti-avoidance legislation is extended to include civil partners in the same way as spouses. This includes the legislation relating to settlements, company control and the transfer of assets abroad.
Income tax & older married people - those aged 65 or over may be entitled to higher personal tax allowances (see Income Tax section) although some special allowances have been phased out. To avoid the infamous "tax trap", keep taxable income below the limit and qualify for these allowances perhaps by placing cash in alternative investments (e.g. Individual Savings Account plans and "With Profits" bonds). However, this does require financial advice to be taken from a suitably qualifed and authorised source.
Rented out property - if property is let furnished remember to claim all available expenses BUT REMEMBER that the old 10% "wear and tear" deduction has gone. Claims should now be made for replacement costs.
Watch out, too, for changes in attitude as well as legislation. For example, the rules on claiming for the costs of replacement double glazing have been relaxed but the replacement of freestanding "white goods" in an unfurnished property may not be tax deductible. We recommend you discuss this issue with us as the rules and attitudes are constantly changing.
Gift Aid donations, carry back - Gift Aid donations can be carried back from the current year to the previous year providing an election is made on the Tax Return. For example, when filing your 2020/21 Tax Return, you can elect for any Gift Aid donations made during the period from 6th April 2020 to the statutory date of filing to be carried back to 2020/21.
NOTE: Once a Tax Return is filed you cannot go back and make the "carry back" claim later.
Dividends or salary? - small/family companies may be tempted to pay out profits via dividends rather than salary as costs are reduced and cash flow greatly improved. However, the following points must be remembered:
1. Impact of abolishing the tax credit system (see Corporation Tax) coupled with the introduction of the new personal "dividend tax".
2. Dividends could artificially inflate the value of the paying company for inheritance tax purposes and could cause artificially high tax bills on shareholder's death.
4. As mentioned elsewhere in this site GREAT CARE must now be taken where a company wishes to pay dividends and/or salary to connected people (e.g. husband & wife or other family members).
New businesses - Care must be taken on start up in choosing the date at which the first accounts will end. This is particularly so when initial profits are erratic. Tax can be saved and cash flow improved if time is taken to examine which date to choose.
Inheritance tax - Make careful use of Trusts to assist in reducing the potential bill and ensure death benefits from pension plans are written in Trust.
Company cars - drivers of "gas guzzling" vehicles have seen a large increase in their tax bills. Advice is to review cars and plan to change to more fuel efficient transport.
Advice may be to simplify arrangements and consider using the Authorised Mileage Rates. These authorise tax free payments to employees for the use of their own car on company business. The rates are 45p per mile for the first 10,000 business miles and 25p per mile thereafter.
If the employer pays less than the full rate the employee can claim the difference as a deduction on his/her personal Tax Return.
Company vans - a van provided by an employee for an employee's use results in a "flat rate tax benefit" charge to the employee. This is reduced to NIL but only IF the van in not used for any private purposes whatsoever. It is therefore vital that all employers in this position review the basis on which employees are provided with company vans to ensure that, so far as is practical, no tax benefit charge arises.
Unpaid tax - under EC agreements regulations are in place to allow the tax authorities of EC countries to pursue people across all member countries for unpaid tax debts, wherever arising originally. This is, of course, subject to change post Brexit.
Overseas bribes - even if payment of an overseas bribe is not a crime in the UK it is, from 1st April 2002, no longer a tax deductible expense in the UK.