After 400 TaxBuzz blog posts - what now?

That last blog post was the 400th I've posted here. I thought I should recognise the fact as no one else will do so.

I started this blog around 4 years ago by offering comment, explanation and analysis of key UK tax developments. I made a classic mistake in that I was inconsistent. Sometimes I wrote for the general public. Sometimes I wrote for accountants. (Both can use the Tax Advice Network to source specialist tax advice). The blog was intended to help optimise the Search Engine attractiveness of the Tax Advice Network website.

Two years ago I wrote a Review of TaxBuzz blog 2009 in which I explained my thinking and explored the types of issues that had featured on the blog.

I have long enjoyed writing and sharing ideas and tips. Years ago I was complimented on my ability to explain complicated issues in an understandable way. I will let my readers be the judge of whether I have continued to exhibit that skill.

Two of the most common topics for my blog posts have been tax quirks benefiting MPs and explanations about the complexity of tax avoidance and tax evasion. I like to think I have adopted an even hand as regards the latter issue although I have not hidden my dislike of artificial and abusive avoidance schemes.

Sometime during 2009 I decided to focus the blog on debunking tax stories in the media. I felt this was a worthy service but I have received limited feedback and started to question who was I doing this for? In September 2011 I got bored and went for almost 2 months without posting any new items to this blog. I realised that much as I had enjoyed the blogging it was taking too much time and for no discernable benefit.

The nonsense written in the media about Vince Cable's VAT situation brought me back at the end of October. having written two posts on the topic I want to avoid slipping back into my old ways. Throughout the month of November I have been posting a new style of TaxBuzz in the form of, typically light-hearted, tax related awards. These rarely take much time to write. I have had little feedback to date ;-(

Whether I will continue posting an average of 2 items a week for the next 4 years I canot say. But 400 tax related posts is quite an achievement and I'm rather proud of myself.

Do let me know your thoughts.....

Tax Trial of the week: Harry Redknapp

Although the trial does not take place until January, the announcement that the Tottenham Hotspur manager, Harry Redknapp, has been formally accused of cheating the public revenue, wins my Tax Trial of the week award.

Mr Redknapp's alleged offence relates to tax payments due while he was manager of Portsmouth football club. He has been indicted along with the then Chairman of the club, Milan Mandaric.

The allegations specify two sums of money, $145k and $150k (totalling about £180k) allegedly paid by Mr Mandaric between 2002 and 2007, in connection with Redknapp's employment, into a Monaco bank account allegedly opened by Mr Redknapp in order to conceal the monies from HMRC and to evade the payment of taxes thereon.

Both Mr Redknapp and Mr Mandaric deny any wrongdoing.

Vince wins Tax mistake of the week - tho there's more to this than meets the eye

I couldn't resist bringing this blog out of hibernation to comment on the story about Vince Cable and the £500 fine he paid for failing to register for VAT. (And who can blame the Sun for reporting this under the headline 'Vince Avoids Tax').

Of course he wins my Tax Mistake of the Week award.

But I have some questions that the mainstream media seem to have missed. And in so doing they have misreported the story.

1 - Did Vince or any of his staff issue invoices for the fees and royalties that he earned during the year in question? If not how will he satisfy HMRC re the adequacy of his books and records? (I mean his accounting books and records, not the book he wrote or his Dancing records!) Let's assume the answer to this questions is 'yes'.

2 - Was VAT added to the fees he charged? If so, the invoices will have falsely suggested to his clients and publisher that he was registered for VAT and they will have accounted for VAT in error. So this probably didn't happen.

3 - But, if VAT wasn't added then his taxable income will have been overstated. Has he claimed his tax refund? For example on just one invoice he would have paid income tax on £8,000 but HMRC have now deemed this to include VAT such that his taxable income should be reduced to £6,667.

4 - How much has this error really cost Vince?
If his taxable income is now lower than he thought he will also have gifted more to charity than he intended to do so. In the above example, Vince is said to have gifted the KPMG fee of £8,000 to charity (under Gift Aid presumably).  He has sufficient other income to cover this but his 'embarrassing' error has cost him more than the fine. He's out of pocket by the excess donations to charity. And if he hasn't claimed back the additional income tax then that's a further cost too.


There is also the question of whether Vince would have been treated as generously by HMRC under the new new penalty regime. And whether he received any special treatment.
I doubt we will ever know.


Let me be clear. I sympathise with Vince's embarrassment and agree that he did absolutely the right thing in sorting things out, unprompted, as soon as the oversight was brought to his attention.  He neither sought to nor did he avoid any tax. Indeed he may well have refused to engage in what was to him tax avoidance by registering early for VAT. (See next blog post).


The above points are relevant to each invoice Vince issued for his speeches and for his book royalties. For example it has been reported that Vince charged £8,000 for a speech to KPMG. Did he invoice £8,000 or £9,600 (being £8,000 plus VAT)? If he only charged £8,000 then HMRC are deeming this to be VAT inclusive. The VAT included in such a fee would be £1,333 leaving net earnings of £6,667.

NO. The Revenue do NOT approve Disclosed tax schemes

I was at a business networking event last week and found myself talking to 'Bill' from 'XYZ Capital management'. He will have seen my name badge referenced the 'Tax Advice Network'.

This is pretty much how the conversation went:

Me: And what do you do at XYZ capital management?

Bill: We help wealthy people manage their capital.

Me: Are you financial advisers?

Bill: More than that. We can help people reduce the tax they pay down to zero, using approved tax schemes.

Me: Approved by whom?

Bill: HMRC. We only use approved schemes that have been fully disclosed under DOTAS

Me: Sorry. HMRC never approve tax schemes. The Spotlights page of their website was recently updated to make this clear as they are fed up of promoters telling people that a disclosed scheme has been approved - when it hasn't.

Bill: Well, once they've been disclosed HMRC don't seem to have a problem with them.

Me: Sorry. I know a bit about all this. But I think it's best I keep off my soapbox and simply say I have no interest in such schemes.

I resisted the temptation to give 'Bill' a full lecture. He asked for my card - which I gave him and suggested that if he wanted to know more about HMRC's Spotlights page he could check out the references to it on this blog. I said I had also addressed the way that tax schemes are, in my view, frequently mis-sold.

If you're reading this 'Bill', do let me know what you think.

Tax twang: Tax avoiders and evaders to be exposed on Wikileaks

The papers are reporting that Rudolf Elmer, a former executive at Bank Julius Baer, yesterday handed over a CD listing the details of 2,000 allegedly tax dodging individuals and firms to Wikileaks founder Julian Assange. Assange said he could publish the data within two weeks.

According to media reports Elmer was, until 2002, chief operating officer of the bank in the Cayman Islands. Bank Julius Baer is one of Switzerland’s top private banks and accuses Elmer of stealing the information he has now passed to Wikileaks.

As the Telegraph reports: Celebrities using tax avoidance schemes could be in the spotlight

Taking advantage of complex tax laws in order to reduce the individual burden is perfectly legal and has been standard practice among the super-rich for years.

Whilst that is true, I have mentioned on this TaxBuzz blog many times, that the dividing line between legal tax avoidance and illegal tax evasion is more blurred than some would have us believe.

Fancy tax avoidance schemes will often be determined as legal by top tax barristers. Such opinions will often be hedged with caveats but as long as all the related advice is followed to the letter, all should be well. By which I mean the rich taxpayer will have a strong defence and can claim to have stayed on the right side of the letter of the law. On the other side of the line we have blatant tax evaders. Contrary to the press stories implying that they are always rich, they operate at all levels of society. Tax evaders are those who fail to disclose all sources of taxable income, inflate their business expenses or otherwise pay less tax than is strictly due.

Rudolf Elmer's list apparently includes the names of celebrities and politicians from around the world. Many will be household names and, I've no doubt, many will be British. I suspect they will all be tarred with the same brush. Only they, their closest advisers and HMRC (the taxman) will know whether their deposits were the result of fancy tax schemes or the proceeds of blatant tax evasion.

Or does the list contain more extensive details of the "tax dodging individuals and firms"? Time will tell.

Related posts:

• Tax planning to be wary of
• Do you have to organise your affairs to pay the maximum tax?
• Doesn't everyone try to avoid or evade taxes?
• Tax planning schemes

IR35 avoidance scheme - Dispute between the promoters

Full details of an old IR35 tax avoidance scheme are explained in the judgment from September 2009 of Montpelier v Jones and Morris.

The case centered on a dispute between various parties who had arguably either conceived, funded or promoted the scheme. The judgment includes:

• a summary of the background to the scheme which followed the introduction of 'IR35' in 1999;
• an explanation as to the development and promotion of the scheme from 2000-2003;
• names of all the companies involved including Montpelier Tax Planning (Isle of Man) Limited, Westwood, OMPS Limited, Contractor Solutions Limited ("CSL"), Executive Solutions Limited ("ESL"), MTM Consultants Limited, MTM (Isle of Man) Limited ('MTM') and www.suomotu.com.
  
• reference to Counsel's opinions (including those of David Milne QC, Philip Baker, Adrian Shipwright and Robert Argles) and extracts from some settled notes of conferences with Counsel;
• reference to E&Y London instructing E&Y IoM to withdraw from participation in the scheme, which was allegedly described as a "political hot potato";
• reference to alternative structures involving the use of Employee Benefit Trusts (EBTs);
• Montpelier's claims of breach of confidence, breach of copyright, passing off and procuring breaches of contract;
• The counterclaim by Mr Jones and Mr Morris that Montpelier repudiated contractual arrangements.

Although this was not a tax case the level of detail contained in the judgment will be of interest to anyone who advises on tax avoidance schemes. And also to those who shy away from them.

As I've indicated in previous posts here, the existence of Counsel's opinion does not guarantee that a scheme will succeed. The ultimate decision in this regard will rarely be known with certainty until after it has been tested in the courts. And that often means a long wait.

Is it ever morally acceptable to fiddle your tax form? (Radio4)

A friend suggested I listen to a Radio 4 Sunday morning religious programme broadcast this morning. The headline item was titled: Is it ever morally acceptable to fiddle your tax form?

I listened with interest and growing disappointment as I realised that this was a clear case of misrepresentation.

In the event the real focus was the age old argument about the moral rationale for telling white lies. As one speaker noted: When your wife asks: "Does this dress make me look fat?" No man should ever reply, "No dear, it's your fat that makes you look fat".

But en route to that discussion the presenter, Ed Stourton, introduced the programme by referencing "good citizens" who had either already filed their tax returns or were "scrambling to meet tonight's deadline". The BBC had apparently undertaken a straw poll on the streets of Manchester and the public had presumably been asked the question from the title of the programme.

Interestingly the majority of those asked seemed NOT to have fiddled their taxes. I got the impression that this wasn't what the producers had expected. There were a couple of more interesting replies such as:

"Some people tweak their receipts - fair play to them"

"I've embellished, but never fiddled (I've claimed I've done more miles in the car)"

But then it was clear that subsequent replies were to more generic questions about white lies and 'ethical creep'.

Back in the studio the distinction between embellishing your expense claims and fiddling your tax return was later described, without approval, as "cunning" - with no reference being made to the 'cunning' MPs' expenses scandal last year (which prompted me to list the 25 unanswered tax questions).

There was also a reference to the classical distinction between legal tax avoidance and illegal tax evasion.

But perhaps the most shocking (to me) point was when Ed Stourton asked his guests:

"Is anyone who uses an accountant guilty of an ethical crime?"

The implication seemed to be that all accountants help their clients pay less tax than is strictly due. His guests did not agree with this implicit slur on our profession and the discussion then moved entirely away from the subject of tax forms - despite the title of the programme. I wonder why?

At the time of writing you can listen to the programme online or as a Radio 4 podcast.

Bragging about witholding tax due by 31 January

Billy Bragg's tax protest, re the bonuses due for payment by (84%) state owned RBS, has received wide publicity in the media - from the FT and BBC to the Daily Mail, the Daily Mirror and the Guardian. And let's not forget his facebook group: NoBonus4RBS which now has over 23,000 members (at the time of writing).

I sense the genuine anger and frustration behind the protest and the growing support for Billy's campaign. Initially he was reported to be intending to withhold payment of the income tax he was due to pay by 31 January 2010. In his BBC interview however he admits that his taxes will be paid.

Here are a few facts for anyone considering joining the campaign and seriously intending to hold off paying their tax on 31 January.

Basic rules

1. If your tax is paid late the taxman's computer will charge you 3% interest until the tax debt is settled. If all of the tax due is not paid by 28 February the computer will add a 5% surcharge that you will be liable to pay in addition to the tax and interest. The surcharge increases to 10% if the tax isn't fully paid by the end of July 2010.
2. The £100 fine that you often hear about relates to the late submission of your tax return. So you can file your return online by 31 January and avoid the fine even if you don't intend to pay your tax on time. Incidentally, if you pay all your tax on time the £100 penalty is cancelled once your tax return has been fully processed.

Coming back to the campaign:

1. If you are an employee or pensioner you probably pay all of your tax through the PAYE system. This means you have no tax payable on 31 January. So you can join the campaign in spirit only.
2. If you are self employed or have to submit a tax return for other reasons you may well have already submitted your 2008-09 tax return. In such cases you and the taxman will know how much tax you should be paying by 31 January 2010. So you can expect to get increasingly threatening demands if you do hold back on payment.
3. If your tax return has yet to be filed the taxman doesn't know how much tax you are due to pay. So initially the demands will be for you to file your tax return. The £100 late filing fee will be charged and added to the outstanding tax, penalty, interest and surcharge.

Cutting off your nose
You may be due a tax refund from the taxman. This will generally only be the case if your total tax bill for 2008-09 will be lower than it was for 2007-08 - eg: because you suffered a fall in your income due to the recession.

The tax refund will arise if you have paid all the tax due last January and last July but where it now transpires that this is more than you needed to pay for 2008-09.

If this describes you then you would lose out if you joined the campaign by holding back on filing your tax return. Obviously the taxman won't send you a tax refund until he has processed your tax return.

Comment
I admire Bill Bragg for raising the issue so publicly and for linking it with tax payments due by 31 January. In practice though the taxman's computer will churn out standard demands for interest, penalties and surcharges if tax is paid late. And I can't see those demands being waived if anyone tries to argue that they paid late because of this campaign. So, support Billy's facebook group if you're so inclined - but pay your taxes on time!

HMRC wins Best public policy decision of the year

At the first ever Citizens Advice Awards ceremony this week, HMRC were announced as winners of the "Best public policy decision of the year". This was felt to be HMRC's decision not to issue unexpected tax demands to thousands of low income pensioners following an administrative error in respect of the tax year 2007-08.

The Citizens Advice press release explains that:

"Through their engagement with a coalition of charities, including Citizens Advice, HMRC demonstrated that as well as being open to arguments of a legal and financial nature, they were also mindful of the plight of the pensioners concerned. In using their discretion not to pursue the unpaid tax they displayed the fairness and common sense for which this award commends them."

The only problem is that I'm not sure that HMRC deserve the award. As is well known HMRC do not have facility to exercise discretion and regularly tell us that they are legally obliged to collect all tax that is due even when the law operates unfairly.

As reported by the Telegraph in May 2008, the decision to waive the collection of tax in the case described in the citation was taken by the Government in response to extensive pressure brought by the charities and MPs. Perhaps HMRC officials were known to have passed on these representations to minsters. Perhaps.

What's your view on this award?

When did or will Zac Goldsmith cease to be a non-dom?

It's been revealed that Zac Goldsmith has been claiming that he is not domiciled in the UK for tax purposes. Zac is the green adviser to David Cameron and a prospective Tory MP for Richmond Park.

Non UK domiciled taxpayers are not required to pay UK income tax on income that arises overseas as long as it is not remitted to or enjoyed in the UK. If they are resident here non-doms are fully taxable on their UK source income. As of last year any UK residents who claim the tax benefits of being non-doms are liable to pay an annual £30,000 charge in lieu of the tax on their overseas income.

The article in the Sunday Times contains extensive reference to trust assets made available to Zac as a result of late father's largess. What the article doesn't do however is to explain the justification for Zac's (admission that he) claims to be domiciled outside of the UK.

His status would seem to be derived from his father's non-dom status at the time that Zac was born. This is commonly the case and would mean that Zac has a domicile of origin in a specific overseas country. However this is not the end of the story. Zac has spent most of his life in the UK. So he might be thought to have established a domicile of choice here - and thus have forsaken his non-dom status. Indeed a spokesman is reported to have stated that Zac:

"has already taken the decision to relinquish his non-domicile status.”

I'm sorry? Either he has established a domicile of choice here or he hasn't. As HMRC's own guidance says in HMRC 6:

Broadly, to acquire a domicile of choice you must leave your current country of domicile and settle in another country.

The booklet goes onto confirm that it's a lot more complex than this and there are a series of useful flowcharts (on pages 25-28) that are intended to help people understand their domicile status. I fear that Zac has already established a domicile of choice in England.

I hope he has already filed his 2008/09 tax return. Otherwise he will be hard pushed to claim non-dom status on it if he has already decided to accept that he is domiciled here in future. Indeed HMRC could question the legitimacy of the claim on previous tax returns as there has to be a date from which someone's circumstances change and from which they are to be treated as domiciled here. Would that have been the date on which he was elected as the local Conservative Parliamentary candidate in March 2007?

Lesson? Tax rules are complex - never allow your spokesman to make statements that could impact your tax position unless they understand the implications of what they are saying and this accords with the facts.

Five tips to spot scam emails from 'HMRC'

Many of us are used to receiving scam emails promising us something for nothing. Over the last couple of years fraudsters have been sending increasingly more sophisticated scam emails that purport to come from the taxman (HMRC). Even the Guardian, the Independent and the BBC are now reporting on this. Although they and other media tend to only be repeating the content of HMRC press notices and examples of recipients of scam emails.

Variations on such emails promise enticing opportunities such as tax refunds, the waiver of penalties, prize fund winnings, corrections to your NI record and updates to your HMRC security details. These emails are designed to fool the most suspicious of recipients and include links to what appear to be genuine pages of HMRC's website. In some cases, once you have been tricked into disclosing personal information you are then redirected to real HMRC web pages.

In theory we could all simply set our computer's spam filter to catch all emails that purport to come from HMRC. But the spammers know that many of us cannot do this. We may have registered to file our tax returns, our VAT and/or our Payroll returns over the web. We need to see the emails that confirm these have been received and processed. And although HMRC's press releases contain good advice they do not contain a simple summary.

So here are my five tips to help you identify scam emails that purport to come from 'HMRC':

1. Email asks you to supply bank or credit card details or links you to an HMRC website that asks for this information;
2. Email asks you to supply personal or password details or links you to an HMRC website that asks for this information;
3. Email asks you to complete a form to receive a tax refund or rebate or links you to an HMRC website that asks you to do this;
4. Email asks you to download an application or executable file (.exe) or links you to an HMRC website that asks you to do this;
5. Email does not contain your name, was unexpected and does not relate directly and specifically to any details you have filed online with HMRC in the previous 48 hours.
   

HMRC would never send out genuine emails that do any of the above. Specifically they say:

1. They never send notifications of a tax rebate over email;
2. They never request that you update your security certification by email;
3. HMRC's Online Services are only available to customers who register their details in advance;
4. They never issue emails asking for personal details;
5. If you receive an email requesting such information, please forward it to phishing@hmrc.gsi.gov.uk and then delete it;
6. Never disclose personal information such as User IDs or Passwords in response to email requests;
7. If you do follow a link to HMRC's website that requires you to enter sensitive personal information, only do so if there is a padlock in the bottom right hand corner of your Internet browser when you are on that page;

If you want to know more there is a dedicated and regularly updated page on the HMRC website that contains examples of the scams and frauds. The Tax Advice Network has reported on this in the past and offered practical tips and links in our weekly practical tax newsletter. HMRC also publish guidance on how you can make your online experience as secure as possible. This is aimed at the increasing number of taxpayers who have registered to communicate with HMRC online.

NON-accountant jailed for £2.5m buy-to-let tax fraud

John Warman described himself as an 'accountant' for over 40 years. He practiced in Nottingham but had no professional qualifications.

As reported in the press, Warman has now been jailed for eight years for his part in a £2.5 million buy-to-let tax fraud. His co-accused was a client, Simon Fields, a key figure in Nottingham’s property rental industry.

On sentencing Warman, Judge Hamilton said: “You were not a very good accountant, but a very good fraudster, manipulating people and finances to fund a very comfortable lifestyle for yourself. You used your clients to feather your own nest. People trusted you and you breached that trust."

I mention this here as it comes as a surprise to lots of people to learn that anyone can call themselves an accountant. Unlike 'solicitor' and 'dentist' the term is not reserved to qualified professional advisers. John Warman was unqualified and a crook. I wonder how many of his clients were aware he had no professional qualifications?

For the record there have been attempts to prevent unqualified practitioners, like John Warman, from describing themselves as accountants. Last year Vince Cable tabled an Early Day Motion to secure protection for the term. The Government formally rejected the idea. I think this was a good result. My view is derived from many discussions with members of the public in connection with the Tax Advice Network which provides a support service for accountants. I quickly realised that that there was a degree of confusion as most non-accountants assume that all accountants are tax advisers - ie: the words are thought to be synonymous.

In a post on the Ambitious Accountants blog last year I explained my view that the campaign to protect the term 'accountant' could backfire. Simply stated, most people are more interested in saving tax than in getting a set of accounts. If unqualified people could no longer call themselves accountants they would simply call themselves tax advisers. This is another unregulated term and would quickly become better recognised by the public than is currently the case. And tax advisers would then become more popular professionals to approach re tax matters than accountants. Qualified accountants wouldn't like that scenario I'm sure.

The bottom line is that there are good and bad unqualified accountants. There are good and bad qualified accountants and there are good and bad tax advisers. With the advent of a ratings system and public testimonials it should be clear that we only retain good tax advisers in the Tax Advice Network ;-)

Naive promoters of tax avoidance schemes

I saw a promo flyer from a respected accountancy grouping last week. It contained an overt promotion of [presumably 'new style'] employee benefit trusts for accountancy firm clients. I'd like to clarify a few points in this connection.

Here's the gist of what was in the flyer:

• We've formed a strategic alliance with some tax avoidance gurus;
• They are working closely with some of our members who are now 'tax mentors';
• They have all signed confidentiality agreements and won't compete with your firm if you let them at your clients;
• One of the 'mentors' has shared a case study "to show how an Employee Benefit Trust strategy has actually worked for one of his clients".

The clear implication being that this case study should persuade readers to consider talking to their clients about similar such schemes. Even more so as many accountants have clients just like the one featured in the case study and who was seen for the first time in late 2006:

"One of the first things identified was that the directors were paying substantial amounts of both Corporation Tax & also personal tax, due to the voting of bonuses in order to bring the taxable profits down to the small companies Corporation Tax rate band, and then dividends thereafter."

Of course the 'substantial' amounts of CT and IT are simply a function of the level of profits. The previous accountants have evidently been advising the client how to withdraw profits in the most tax effective way - without adopting any abusive schemes. The case study continued:

"We presented to the Board regarding extraction strategies and the directors decided to undertake an Employee Benefit Trust strategy, sheltering £300k into the Trust which was then taken by the directors as a loan from their individual "sub-trusts". The initial saving in tax, net of costs, was in excess of £100,000."

"The directors have been so delighted with the process that they are currently undertaking their third EBT in advance of their 31st August 2009 year-end. Both directors are personally debt free, they have both bought holiday homes with no borrowings &, very importantly, the balance sheet of the Company now has no excess funds on it, above those required for working capital purposes, hence a minimum amount of funds exposed to commercial risks."

"Finally, do the directors happily recommend us to other businesses that they come in to contact with? - Absolutely!"

Love that last line. Of course the Directors are happy and great advocates. But I'd also bet that they are either unaware of the risks they have taken or omit to mention them to their friends.

There's a fair amount missing from this story. Let's assume it's due to naivety and the desire to make a compelling advert for the promoters.

Let's start with the fact that the enquiry window for the first year's transaction (y/e 31/8/07) hasn't yet closed. And what about the (inevitable) ongoing HMRC enquiries? The best practice advice to keep the money aside to fund the tax in case it does eventually becomes payable? The lack of certainty as regards the final outcome?

And what about all of the other clients who were approached to adopt the scheme but who did not go ahead once they understood the costs and risks? Is it really worth an accountant spending all that time and effort if only a small proportion of clients decide to proceed? Presumably that's part of the reason for inviting a third party 'tax mentor' to do the pitching. In this connection I wrote a separate piece offering a simple guide to tax avoidance schemes last month.

Is it me? Do share your views - anonymously if you prefer.

Paul Aplin OBE and Chris Tailby CBE

I'm delighted to note that Paul has been awarded an OBE in the Queen's Birthday Honours list today. He is coming to the end of his tenure as Chairman of the ICAEW Tax Faculty and is the first Chairman of the Faculty to receive such an award. I'm proud to consider Paul a trusted friend and consider the award to be extremely well deserved.

I've known Paul for getting on for 10 years and still recall our first lunch when I asked him to be Vice-Chairman. He was not sure he was upto the task, being (in his mind) just a simple general tax partner in a firm of accountants in Taunton. He was, as ever, being characteristically modest. He proved to be a very supportive and hard working Vice Chairman (whilst I was Chairman) and then moved onto hold the Deputy Chairman role and then for the last two years has been Chairman in his own right.

There will be more fulsome records of his achievements, commitment and dedication in due course. Perhaps the first such occasion will be the Faculty AGM this week. The timing could not have been better.

A couple of years ago Paul won the Tax Personality of the year award. I recall many months beforehand leaning over to the Editor of Taxation magazine (and Chairman of the judging panel) to suggest that Paul be considered for that award. We had just heard that Paul's tireless campaigning on a key issue for the profession had paid off. He had spent much time behind the scenes trying to persuade Lord Carter that the filing deadline for tax returns should not be brought forward to September (as Lord Carter had previously proposed). Many other groups sought to claim credit for Lord Carter's change of heart but I knew it was as much down to Paul as to anyone.

Paul has a relatively quiet manner but he understands people and gets things done. He richly deserves this honour and I'm absolutely delighted for him. I note also that having spent the last two years on the Council of the ICAEW in an ex-officio position he has already been co-opted to remain on Council to assist in (continued) liaison between ICAEW, HMRC and the Treasury.

In scanning the Birthday Honours list I note also that Chris Tailby, the shortly to retire Director of the Anti-Avoidance Group at HMRC, has been awarded a CBE. I've known Chris for some years, dating back to before I was Chairman of the ICAEW Tax Faculty. I well recall a time he responded to one of my emails from a holiday beach on the continent. Clearly a man who works hard. And like Paul, very unassuming and good company.

If you have any knowledge of Paul or Chris please add your comments to this post.

Pringles: Once you pop you just can't stop - paying VAT

It's tax cases like this one that highlight some of our crazier tax laws. Nevertheless I'm writing about it here on the TaxBuzz blog rather than the Accountant Jokes and fun blog as this is serious stuff.

Are Pringles "similar to potato crisps and made from the potato?"

That was the question. How could such a simple question be relevant to determining the liability to something like £100m of tax for the past and about £20m a year for the future?

Technically speaking it seems that Pringles (owned by Procter & Gamble) is "a manufactured savoury snack product". I always thought it was a crisp. Didn't you?

If it was a crisp then part of the price we pay for Pringles would be VAT. Procter & Gamble would have to pay this over to HMRC. But if Pringles are not crisps they would be zero rated for VAT and nothing would be payable to HMRC. The amount at stake - as I said above - is HUGE.

Food products are generally zero-rated for VAT purposes; However there are some excepted items. For example chocolate covered biscuits (see below) and VAT is also chargeable on:

"Any of the following when packaged for human consumption without further preparation, namely, potato crisps, potato sticks, potato puffs and similar products made from the potato, or from potato flour, or from potato starch, and savoury products obtained by the swelling of cereals or cereal products; and salted or roasted nuts other than nuts in shell."

Ah - well, until today I didn't know exactly how Pringles are made and would have assumed that they don't satisfy that definition. I suspect there is some 'further preparation' and maybe they aren't made only from potato products.

Indeed it seems that is exactly the conundrum that caused the dispute in the first place. Proctor & Gamble claimed that Pringles were outside that definition and so zero-rated for VAT. HMRC disagreed.

Stage 2 was a hearing before the Tribunal. The Commissioners decided that Pringles are crisps so HMRC won the argument. Procter & Gamble didn't like that so they appealed. The key point here is that the Tribunal had to determine all the relevant facts. Subsequent hearings are limited to consideration of the law.

Stage 3 was at the High Court last summer. This time Procter & Gamble won. Pringles are not crisps. Guess what? HMRC didn't like that and appealed. As indicated above the judge was only permitted to reach a different decision to the Tribunal if he believed that they had not applied the law correctly.

Stage 4 (in April 2009) was at the Court of Appeal. Yesterday we heard that HMRC had won. In effect the High Court judge was wrong and the Tribunal had applied the law correctly originally.

The key questions seem to have been whether the test is potato-ness, the relative proportions of potato in crisps and Pringles distinctive taste.

The decision is quite an entertaining read - in parts (or maybe I'm just sad!). Did you know for example that Procter & Gamble's 'Dippers' contain just as much potato as Pringles (about 40%) but that in 2003 they were held NOT to be like crisps? As result - they are zero rated for VAT.

You have to wonder whether the VAT treatment of crisps was taken into account when the recipe for Pringles was being settled. I'm doubtful but then again the amount of VAT at stake is pretty big. Maybe the instruction given was to create something like a crisp that's not a crisp for VAT purposes.

This whole case is reminiscent of the earlier high profile case on a similar issue - whether or not Jaffa cakes were VATable chocolate covered biscuits. They're not. They're VAT-exempt cakes!

Rather than dwell any further on the technicalities of the case let me offer just a couple of quotes from the judgment:

"not even potato crisps or potato sticks (no-one knew about potato puffs, even what they were) are 100% potato."

"I think that most children, if asked whether jellies with raspberries in them were "made from" jelly, would have the good sense to say "Yes", despite the raspberries."

And just to clarify:
The price of Pringles won't be going up. Procter & Gamble have been paying the VAT to HMRC in case they lost the case. The £100m is how much would have been repaid to Procter & Gamble if they had won the case.

What do you think of these technical distinctions between VATable and zero rated foods?

Tax Advice Network on BBC - twice in two days

Not strictly TaxBuzz but arguably worthy of note. I was interviewed for BBC's Newsnight programme on Monday evening and subsequently appeared live on BBC's Working Lunch programme on Tuesday.

For Newsnight I think they filmed about 15 minutes of Q&As and broadcast just 15 seconds.
(It's around 19 minutes in if you're desperate to catch it on BBC iplayer for the next few days).

For Working Lunch my piece was somewhat longer - about 3 minutes of air time right at the start of the programme.

On both occasions I was asked to comment on Flipping properties - avoiding CGT when you have more than one main residence - partly on the back of the TaxBuzz blog comment I wrote on Sunday.

Newsnight simply used one sentence I said, in the context of the final 3 years deemed useage rule for property that has at some stage been your main residence: Looked at objectively one has to question whether the rule has remained in place and as generous as it is because so many MPs are able to benefit from it.
After all how many other people take 3 (or even 2 years as it was previously) to sell their old house after buying a new one?!

On Working Lunch the journalist explained the basic 3 year 'overlap' rule then Declan Curry (the presenter) asked me to explain the facility to elect which of two properties is your main residence. I also had to explain the rent a room scheme and the charge to CGT if you sell a rented property. So, not much to squeeze into 2 or 3 minutes of airtime!

VAT Office tells caller to ring the Tax Advice Network

When people call us they are normally put through either to the Tax Advice helpline or to whichever of the tax advisers they have chosen from our website.

Around 4.30 today a caller (Tina) was put through to me as my assistant was unable to determine what she required. Tina offered to quote her enquiry number to me. I thought maybe she had called us by mistake. Perhaps our number is very similar to an HMRC office. But no, she had called the number she'd been given by the local VAT office!

(Given the rate at which HMRC are shedding staff at the moment I wonder if the day will come when there are more tax advisers within the Tax Advice Network than left in HMRC?!)

Once we had established what had happened, Tina was equally confused as to why HMRC had given her our number. She thought it was because no one at HMRC was able to resolve her enquiry and they wanted to get rid of her.

This seems unlikely to me. Tina is a bookkeeper for a client in the catering industry and wanted clearance as to whether certain supplies were zero registered. She'd been told to go to a specific page of HMRC website but had been unable to find the relevant contact details thereon. It took me less than a minute to do so. Why had the person she spoke with at HMRC been unable to assist her? Maybe they don't have access to a computer?

I also questioned whether the clearance facility was really what Tina wanted. I suggested that she might get faster and more reliable advice through our Tax Advice helpline. Equally if she wanted help with a formal letter or anything that involved more than a few minutes on the phone, she should speak to one of the VAT specialist members of the Tax Advice Network.

I'm not complaining - indeed I'm thrilled - that HMRC are directing people with complex tax problems to the Tax Advice Network. Thank you to whoever it was and by all means do it again.

HMRC - Pay up to make them go away

This is one of 3 consecutive posts inspired by last night's TV programme 'Taking on the taxman'. The first gave my take on most of the key elements of the programme. In the second I focused on the issue of bankruptcy orders.

In this post I address an issue only touched on last night. To my mind, however this should have been the main focus of the programme. I'm sure it's far more common and insidious than the relatively rare bankruptcy. (And in so saying I do not for one moment wish to dismiss the seriousness of such occasions).

A retired gentleman received a tax demand that his accountant said was not payable. Further demands appeared and still the accountant said no need to pay. The accountant evidently tried but was unable to persuade HMRC to sort out their systems. The taxpayer's wife was not interested in the accountant's advice. She wanted to pay the tax bills to make the demands stop.

This attitude to tax demands is, I am sure, very common. When I get a notice form HMRC I know it's computer generated. I know that a real person probably hasn't been involved - despite the personalised messages that often appear. I accept and understand that this is how organisations that deal with tens of millions of people have to operate. But I was a tax practitioner for 25 years.

Most people do not have such experience. And for every person who understands the system there are thousands who do not. Many of them will adopt the same approach as did the lady in the programme. "Let's just pay the tax and make the demands stop." This makes it quite likely that large amounts of tax that is not really payable still gets paid.

There will be no records of this as it is the tax demands that were wrong. This will not be apparent until and unless the taxpayer's affairs are reviewed by a specialist tax adviser who really understands the system and all of the relevant rules.

In the same vein I've heard plenty of people over the years suggesting that individuals in HMRC routinely play the 'threat' game when it comes to disputes. ie: "Pay up the tax we demand or pay even more in fees to argue the point, and you may not win." Perhaps this will happen less with the new appeals system that came into effect at the start of this month.

What do you think? Did you watch the programme? Please add your views and thoughts as comments on this posting - just click the 'comments' link directly below.

HMRC making people bankrupt

This is one of 3 consecutive posts inspired by last night's TV programme 'Taking on the taxman'. The first gave my take on most of the key elements of the programme. I've also shared additional observations about one aspect below and one other in the next post.

The first story in the programme focused on a cock-up that resulted in a taxpayer being made bankrupt despite having having overpaid and being due a VAT refund. Ultimately he received £50k compensation which was a fraction of the money he had lost. It was disgraceful. But rare? The key point is that it seems that the bankruptcy order was made without anyone having direct contact with the taxpayer. Eventually it was annulled but not before he'd lost his business, his home and suffered depression.

The reporter made a request under the Freedom of Information Act to see how often HMRC commences bankruptcy proceedings which are subsequently annulled. It seems that in each of the last 3 years HMRC has annulled about 100 Bankruptcy orders. The programme sought to suggest that all such cases were similar to the ones we had heard about.

The voice over did concede however that HMRC had explained that in many cases the annulment occurred once the outstanding debt had been paid. No one questioned whether such debts were always strictly due though.

Dave Hartnett stated that it was right that HMRC had the power to instigate bankruptcy proceedings when tax remain unpaid. I agree. BUT I would expect that such a power should be used as a last resort. The only reason I can think of for NOT requiring a senior official to authorise such use is if this would be too onerous - thus suggesting that the power is being used too freely.

And I wonder whether the use of bankruptcy orders is much like the £100 penalties for late filed tax returns? These are automatically generated by computer and subsequently waived or reduced once the outstanding tax return is filed and the outstanding tax (if any) computed.

What do you think? Did you watch the programme? Please add your views and thoughts as comments on this posting - just click the 'comments' link directly below.

Taking on the taxman

HMRC is such an easy target. And last night's TV programme 'Taking on the taxman' hit the spot. The real life stories were sad reflections of mistakes that have had a devastating impact on the individuals concerned.

This is one of 3 consecutive posts inspired by last night's TV programme 'Taking on the taxman'. In the second post I focus on the issue of bankruptcy orders. And in the third post I gave my take on a key issue only touched on last night.

For now here's my take on key elements of the programme:

Dave Hartnett CB, Permanent Secretary for Tax
Dave Hartnett, who was wheeled out to defend and explain HMRC's position did the best he could do. He refused to discuss specific cases and sought to point out that like any large organisation HMRC will sometimes make mistakes. I know Dave from my days as Chairman of the ICAEW Tax Faculty and I've seen him deal expertly and convincingly with challenging questions on many occasions. As such I am sure that his edited contributions to last night's programme were just that - edited.

Equally I'm sure that despite his denials the recent and prospective staff cuts in HMRC are having a detrimental impact on HMRC service standards.

The bankruptcy orders
I've extracted this element of my notes to create a separate blog post here.

The insider
We were given an insight into poor HMRC practices, pressures of over work and the evident impact of drastic staff cuts. I remain unconvinced that these make sense or that anyone on the inside seriously expects to be able to maintain (at best) or improve 'customer' service at this time - more's the pity. And in this regard I sympathise with HMRC as the staff cuts are being forced upon them and they have to defend them and cope. Not easy.

Tax charged on a redundancy payment
The programme made a big thing about how one taxpayer had expected his £29k (coincidentally just shy of the £30k limit?) termination payment would be tax free - as was indeed eventually agreed by the taxman. But, as were told, he had already invested the gross sum in a new business when he received an initial demand for £8k tax plus interest and an £8k penalty. This suggested to me that either his tax return was incorrect or that his employer had not supplied the 'right' information.

HMRC asserted that the termination payment “was taxable as additional wages.” This is a frequent argument and all too often proves to be correct - for reasons I explained in an earlier posting - 'No £30k exemption from tax when you leave a job'.

So was this taxpayer a victim of an out of control tax gathering department? Or a victim of a tax system that is complex and rules that appear inconsistent to the uninitiated? I prefer the latter explanation but that doesn't make for good d TV in a programme so evidently out to bash the taxman rather than the system. .

Tax avoidance
I didn't follow the juxtaposition of the other stories about HMRC mistakes with Vince Cable explaining that there are too many 'tax avoiders' round. This section of the programme also quoted the figure of £25bn tax lost "through perfectly legal tax avoidance". Hmmm. I think we've been here before.

What do you think? Did you watch the programme? Please add your views and thoughts as comments on this posting - just click the 'comments' link directly below.