Readers may have noted that from the date the Finance Bill 2013 receives a Royal Assent, HMRC will be using new powers to stop abusive tax schemes from reducing a tax payer’s liability. The legislation is set out in the GAAR, the General Anti-Abuse Rule.

It is worth noting that HMRC can use the GAAR to counter certain arguments previously used by the judiciary. There are a number of well-known rulings where the tax payer’s right to use a tax scheme was endorsed. The following quote is from the judgment of Lord Clyde in the Ayrshire Pullman case:

“No man in this country is under the smallest obligation, moral or other, so as to arrange his legal relations to his business or to his property as to enable the Inland Revenue to put the largest possible shovel into his stores. The Inland Revenue is not slow – and quite rightly – to take every advantage which is open to it under the taxing statutes for the purpose of depleting the taxpayer’s pocket. And the taxpayer is, in like manner, entitled to be astute to prevent, so far as he honestly can, the depletion of his means by the Inland Revenue.”
 

Following the implementation of GAAR, Parliament is now in a position to side-step these judgments. HMRC have commented on this change of tack:

‘Accordingly, it is essential to appreciate that, so far as the operation of the GAAR is concerned, Parliament has decisively rejected this approach and has imposed an overriding statutory limit on the extent to which taxpayers can go on trying to reduce their tax bill. That limit is reached when the arrangements put in place by the taxpayer to achieve that purpose go beyond anything which could reasonably be regarded as a reasonable course of action.’

For taxpayers and their advisors this creates a new dilemma; who defines a reasonable course of action?

We will be keeping a close eye in the months to come on ways in which the GAAR is used to close down tax savings opportunities. Watch this space…

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Usually, it is necessary to perform an action within a tax year in order to impact your tax liability for that specific year. One notable exception is the ability to carry back charitable donations to the previous tax year in certain circumstances. The following notes are copied from HMRC’s website and explain what is involved:

‘You can ask for Gift Aid donations to be treated as being paid in the previous tax year if you paid enough tax that year to cover both any Gift Aid gifts you made that year and the ones you want to backdate.

Your request to carry back the donation must be made before or at the same time as you complete your Self Assessment tax return for the previous year but no later than the filing deadline for the tax return, which is 31 October if you file a paper tax return, or 31 January if you file online.’

What HMRC does not mention are the opportunities this facility provides, particularly to higher rate tax payers and those with income in excess of £100,000. Please contact us if you would like more information on this topic.

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We are already two months into the 2013-14 tax year and those readers who need to file a tax return for the year ending 5 April 2013 have until 31 January 2014 to do so if filing online.

In this article we will explain why it is advisable to gather your various P60s and other tax information together and bring them in so we can compute your liability for 2012-13. There are a number of compelling reasons for working through this process as quickly as you can.

1. As part of the tax return preparation process we will work out your total tax liability for 2012-13 and any balance of tax unpaid for this year. Unpaid tax will need to be paid on or before 31 January 2014 so working out the underpayment early means you have more time to save for any tax due.
2. Conversely, if you have overpaid tax for 2012-13 we can file your return and obtain a refund for you.
3. The actual tax liability for 2012-13 also forms the basis for payments on account in January and July 2014. Again, the earlier these amounts are known, the longer you will have to save for payments due.
4.  If your Self Assessment tax liability for 2012-13 is lower than for 2011-12 we may be able to reduce the payment on account due in July to avoid you paying tax and obtaining a refund later. However, to do this we will need to prepare your 2013 return by about the middle of July.
5.  Although most of the tax planning opportunities to reduce tax due for 2012-13 have passed, there is one significant planning option that can be actioned up to the date you file the 2013 return. We have provided more information on this in the following article.

Hopefully, you can now see how you might benefit from getting your tax return records to us sooner rather than later. It pays to be informed.

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If you retire and live abroad make sure that you understand the tax position of your pension before you leave the UK. The UK has a number of so-called “Double Tax” agreements with other countries that set out how income generated and paid from the UK, such as pensions, is taxable.

For example the UK State Pension is paid to people who have reached State Pension age and is based on National Insurance contributions made by the pensioner during their working life. Even though the pension is effectively drawn and spent overseas relief from UK income tax is available under the terms of many, but not all, double taxation treaties.

If you receive a pension that is paid for service to the UK Government or a local authority, it is important that you look at the text of the relevant double taxation treaty. There are three possible tax treatments:

1.  A pension paid by the Government of a territory to one of its former employees will, under most but not all double taxation treaties, continue to be taxed by that Government. However that is not always what has been agreed in a particular treaty and there are variations to this general rule.
2. Some treaties also provide that, in addition to pensions paid by central government, pensions that are paid to former employees of local authorities will continue to be taxable by the territory that is making the payments.
3. Many treaties provide that where a person is paid a government pension by one territory and is a national of (and resident in) the other territory then the right to tax the pension is transferred from the UK to the territory in which the person is resident. 

As rates of tax vary pensioners are advised to seek professional advice before moving abroad to ensure they fully understand their tax position.

And don’t forget, in most cases you will receive your UK pension in £ Sterling, when exchange rates fluctuate you may find the local currency depreciating or appreciating against the £.

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Most businesses trade with the intention of making a profit. In order to do this they must pay certain costs. Generally, these fall into two categories: those that have to paid in order to trade, for example rent, rates, heating and so on, and those costs that have a more expansive role in maximising the profit you make, for example the advice you take from professional advisors that aid business development.

The first group you could describe as true costs the second as an investment.

Why investment?

If you buy advice that makes a positive impact on the ability of your business to make or increase profitability you can measure the impact of the advice and compare the cost, what you pay, with the benefit. In effect what you pay out creates additional income or profit – by investing in the service you have created additional cash flow – your investment has paid off.

It’s worth bearing this in mind when you are next faced with a decision to pay for advice: what are the likely benefits? Can they be quantified and what are the likely chances the strategies advised will work? Don’t forget that not all investments pay-off, especially in the short-term.

Costs that have to be paid can and should be targeted as areas where you could find cost savings by replacing with cheaper alternatives. Costs that may directly influence your business profits or sustainability should not be viewed in the same way. Measure the cost with the likely benefits.

Seeking out the cheapest advice may not be in the best interests of your business.

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