Tax tips hot off the press

Subsistence for sole traders and partnerships

HM Revenue & Customs have for many years allowed sole traders and people trading in partnership to claim reasonable subsistence costs on business trips involving overnight stays away from home, though they have generally resisted allowing costs of meals away from home or office on day trips, relying on case law which states that one eats to live, not to work. Claims to deduct the cost of lunch and other snacks on day trips have thus been refused.

Of course employees have generally been allowed to reclaim such subsistence costs without being taxed on them and many sole traders may well have slipped through claims for their obviously healthy lunches in blissful ignorance of a strict interpretation of the law

Anyway, HMRC is proposing to allow for all sole traders etc. reasonable day trip subsistence costs in the course of business, such as the motorway burger, and are enshrining what has sometimes been allowed on a concessionary basis (where a daily trip might have been outside the normal pattern of travel) into legislation and altering their own guidance manual for their staff. What costs are “reasonable” is not exactly defined – it could even be £30 which might be about the going rate for a motorway lunch – but you still have to keep your receipts!

UK based US taxpayers

Most US taxpayers receiving non-UK income or gains between April 6, 2008 and December 31, 2008 will now owe both US and UK tax on the same worldwide income. (The UK significantly changed the rules for resident ‘non-domiciled taxpayers’ from April 6, 2008.) US tax specialists are suggesting that in most cases the simplest way of avoiding this ‘double-charge’ is to ‘pre-pay’ additional UK tax by December 31, 2008 so that they can set the UK tax paid against the US tax liability for 2008. This is fine in theory, but UK tax due for 2008-09 is not actually payable until 31st January 2010. Therefore HMRC’s system will want to repay any tax that it perceives as “overpaid” prior to that date, and certainly would not allocate to UK tax until that tax became due. US taxpayers are likely to have a lot of headaches over this one, telling HMRC to keep money on the account.

Residence issue

There was a somewhat surprising High Court judgement finding that a South African commercial pilot based in South Africa but with a UK property he used for overnight stays should be treated as resident in the UK (as well as being resident in South Africa). The pilot in question flew long haul for British Airways. It has long been accepted that a person may be resident in more than one country for tax purposes (in which case where both countries would seek to tax a person there are “tie-breaking rules) but the particular surprise here was that it was found that the pilot’s presence in UK was found to be “not merely transitory” because he had a permanent contract to fly out of Heathrow.

I will not go into too much technical detail, and there may well be an appeal, but this does indicate that the long arm of HMRC is extending ever further, and those of you who spend most of their time outside the UK need to be aware that it is important to update your professional adviser on your movements, particularly if you visit the UK frequently for work purposes.

Certificates of Tax Deposit

If you do anticipate having to pay large amounts of UK tax in the future and have put aside funds for this purpose, it is worth mentioning that HMRC pay quite generous rates of interest up to the due date for payment of the tax, possibly better than the high street banks. You could say they are as safe as the Bank of England, though that may not be as safe as it was, and HMRC does its general banking through Alliance & Leicester these days. However, being serious, and if you have to pay tax at some point CTDs are well worth considering.

Bank and personal guarantees

There was a case recently which might become very important in the light of the current economic climate. A director had given a personal guarantee for a company in which he was a 5% shareholder, and then a month after he left, the company collapsed and the guarantee was called in. He tried to set his loss against his employment income, but this was not allowed because the expense was not incurred in the course of his employment – he had left. This was rather unfortunate. There is a capital gains loss he can now claim, but without capital gains profits to set this against he is very severely out of pocket. I suppose that if you have given a guarantee you should hang on in the business until after it is called in – not always practical or even legal in some circumstances as it is unlawful for a company to continue to trade whilst insolvent.

In this case, an appeal is unlikely to be successful.

Demibourne – “self-employed” deemed an employee

HMRC has issued new guidance on procedure where a self-employed person is found in reality to be employed. There is now a power to set the tax paid by the person when supposing he or she was self-employed against the PAYE tax for which the employer becomes due for the same period. Of course the employer will still be liable for significant extra National insurance Contributions and interest and penalties as appropriate, but previously income could have been actually taxed twice over in such circumstances. The new guidance is here. (Click!)

Filing online

For those of you whose tax returns are still outstanding you have to file online by 31st January 2009 your 2007-08 Tax Return. If you do not have a professional adviser (why not?) remember that there was complete chaos at the end of January 2008 with the Revenue’s server failing completely. It would therefore be wise not to leave your returns until the last minute. If you do have a professional adviser then make sure all your papers and records have been provided if not by yesterday then at least within the next week. Remember that no return preparer can make any guarantees to submit returns timeously as we get close to the deadline.

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