These tips are taken from:
“The Greatest Tax Tips in the world” by Lindsay Henson
That little Hideaway – Taxman can check without your knowledge on any of the following:
- Taxman can checkup on The voters lists – proving categorically to vigilant taxman who lived where and when. Without you knowing a thing….
- Returns from estate agents or letting agents of rents collected without your knowledge
- The taxman can also look at Council tax/Business rate paid without you knowing
- Taxman can check your Housing Benefit details of rents paid to landlord without your knowledge.
- Taxman checks Stamp Duty is administrated by HMRC, records from valuation offices on all properties
- The Local papers, checking properties for sale, particularly “Home of the week” where people just cannot help showing off their costly interiors and luxurious lifestyles.Information on properties purchased abroad, even noting information from the likes of TV’S “A place in the Sun” Where prospective purchasers reveal their innermost financial secrets in order to acquire that luxury second home.
- Finally don’t forget the Taxman, the Vatman and their families all need a home – It could be next door to yours.
Having many years of experience on both sides of the fence, I can say with some authority that it is virtually impossible to escape the taxman’s net, particularly as he can, in some cases, go back and collect tax for the previous 20 years. I can give you tips on how to save tax but also save money on unnecessary interest, surcharges and penalties by getting the paperwork right at the right time. I can also save you money on expensive accountancy advice by giving some DIY tips for the brave amongst you.
What’s the difference!
Tax avoidance is legal: you are utilising the tax regime to your own advantage, to reduce the amount of tax payable, by means that are within the law.
Tax evasion on the other hand is what HMRC are out to catch and is what keeps me in a job! It is those efforts by individuals or companies to evade tax by illegal means, often by the deliberate misrepresentation or concealment of the true state of their affairs to reduce their tax liability… and there’s a lot of it about!
Quick tip – The taxman has a bad memory and may forget your birthday. Six months before your 65th, give him a call to ensure he puts your higher age-related allowances in your code number.
Parents, grandparents or even godparents can pay into a stakeholder pension for a newborn baby. Currently by paying £2808 net, the fund swells to £3600, courtesy of the taxman. They can repeat it each year and it works for someone of any age. It is, however, a long term investment as the child cannot touch it until age 55. You may therefore, not be around to see them thank you for it!
There’s no escape from automatic penalties for late tax return filing. Initially it’s £100 – whether you owe £100 and file one day late or £100 000 and file three months late. Don’t let the fine catch you – it can be out of all proportion to the crime. The only get-out-of-jail card is that you owe less than £100, the penalty is restricted to the amount of tax owed.
If you know you are due a tax repayment, submit your return over the Internet. The repayment is likely to be issued more promptly than for paper returns, which have to be manually input, by a human, in the tax office. Online, there’s less chance for the taxman to intercept it and change his mind. Remember to enter your bank account details and you’ll probably find the repayment turns up in your account before the explanatory paperwork lands on your mat.
The taxman is most definitely chasing people who sell things on eBay, and similar sites, to demand tax. So should you expect a knock on the door from him?
The first question to ask yourself is whether you are ‘trading’ or not. There are certain badges of trade which will help you decide:
- Are you buying and selling with a view to a profit?
- Are you buying and selling regularly?
- Are your activities connected with another trade you run? E.g. you buy and sell rugs on eBay, and also run a carpet shop.
- Do you modify things you buy in order to make them more valuable? Such as buying wool and knitting jumpers?
- Do you sell in a businesslike fashion? E.g. bulk-buy and sell smaller lots?
- Do you borrow money for goods and sell them to repay the loan?
- Do you turn the items over rapidly?
No one answer will be conclusive, but be honest and you will get a feel for whether you are trading or not. It’s like the elephant – difficult to describe, but unmistakable when it’s in the front room!
Prevention is better than cure
Minimise the risk of a large tax settlement by being ready for the Inspector’s challenge.
- Record all takings – including ‘ancillary’ amounts from, say vending machines, scrap sales, commission, tips, etc.
- Record events adversely affecting your income – bad weather, power cuts, strike action, road works, illness, competitors.
- Note all stock given away to charity and for raffle prizes etc.
- Record all items taken for own use or in the case of a service industry, time spent working on your own home, etc
- Record waste – from the fish and chips or perishables thrown away, to stock destroyed in a flood.
- Report incidences of theft by staff to the police and obtain a crime number or at least note your records as fully as possible.
- Shoplifting levels should be monitored and noted – it could be around 5% and will affect your gross profit rate.
- Track increases in overheads – heat and light, carriage and wrappings etc.
- Reconcile cash every night, noting and investigating any discrepancies.
- Bank all takings regularly, drawing cash needed for wages etc from the bank.
- Keep petty cash secure, obtain receipts for all items and balance weekly.
Remember the taxman’s ‘foot in the door’ is through your records – and he can go back up to 20 years if he thinks your records are less than robust.
Did you know?
Here’s a list of the sources of HMRC’s information:
- Auctioneers – who return sales chattels.
- Estate Agents.
- Letting Agents.
- Registers from pubs and clubs, of entertainers and discos.
- Registration of yachts and aircrafts.
- DVLA (registered keepers).
- Financial information on your annuities, mortgages.
- Registers of driving instructors.
- Bank and Building Society accounts including ISAs.
- Shipping registries.
- Casino membership lists.
- Companies house.
- Informers – anonymous or otherwise.
- Council tax/business rates.
- Housing benefit claimants and landlords.
- Offshore bank account holders.
- Overseas tax authorities.
- Certain surveillance.
- Snooping at cards/adverts in shop windows.
- Drive bys – identifying executive homes and signs of wealth, e.g. swimming pools, pricey car.
- Reviews of local papers for details of interest like planning approvals, articles about local businesses, car sales etc.
Employers can give items to employees tax free, if HMRC deem them ‘trivial’.
Common allowable items are normally perishable or consumable. Here are some examples that won’t touch employees’ pockets!
- Workplace tea, coffee or water from a cooling dispenser, available generally to all employees.
- Small gifts, such as an arrangement of flowers, as long as this is made in recognition of a particular event (e.g. marriage or birth of a child) and is not part of any reward for services.
- Gifts, such as turkey, an ordinary bottle of wine, or a box of chocolates at Christmas.
If the seasonal gifts extend beyond this to say, a case of wine or a hamper, then they fall into dangerous territory, to be viewed ‘objectively’ and subject to the judgement of the local Revenue officer. One can only hope that his culinary tastes lean towards the more gourmet!
The civil list
The 2004 Civil Partnership Act resulted in tax breaks mainly affecting Inheritance Tax (IHT) and Capital Gains Tax (CGT). So what attracted so many high profile gay celebrities to it and what’s it all about?
- It’s for two people of the same sex.
- Formed when they register before a civil partnership registrar and two witnesses.
- With no religious ceremony and not on religious premises.
- For over 18s in England and Wales (or over 16 with parental consent)
- Not for those already in a partnership/married.
- It ends on death, dissolution or annulment.
- Court can issue a dissolution order on breakdown, on similar terms to divorce or separation orders.
- Nullity order issued if void e.g. one party is pregnant by another at the registration date. Nullity grounds do not include non-consummation.
- Presumption of death order available with presumption of death after 7 years absence.
- Ability to leave assets IHT-free.
- IHT planning as for spouses.
- IHT tax-free transfers.
- CGT inter-partner transfers at ‘no gains/no loss’.
- Utilise annual exemptions for CGT.
- Connected person rules apply.
- Equalise investment income to lower rate partner.
Whether you are ‘connected’ in the eyes of the Revenue can seriously affect your tax liabilities so here’s a guide to who you are connected with:
- Your husband or wife or civil partner.
- Your brothers and sisters and your spouse’s or civil partner’s brothers and sisters.
- Your parents, grandparents and other ancestors and your spouse’s or civil partner’s parents, grandparents or other ancestors.
- In 1799 Income Tax was introduced to fund the war with France against Napoleon.
- At the start of World War I in 1914, the standard rate of tax was 6% and produced Income Tax of £44 million for the exchequer plus £3m in super tax. By 1918 the rate had risen to 30% in order to bring in £275m in Income tax and £736m in super tax – what a difference war makes.
- Due to the growing number of workers during World War II, there was a need for an efficient method of tax collection, so PAYE was introduced in 1944 – some things never change!
- Queen Elizabeth II elected to pay tax on her income in a move to bring the monarchy closer to the people in 1992 – oh, to have the choice!
- Surtax, a super tax, was introduced by Lloyd George in 1909 and not abolished until 1973, hence the prevalence of celebrity tax exiles.
- Despite the fight for women’s financial independence and equality in tax, beginning in 1882 with the Married Woman’s Property Act, married women were not taxed independently until 1990. Prior to this her income was treated as part of her husband’s – surely that should be the other way round!
The death trap
The will won’t wait
If you are one of the 27 million people in England and Wales who does not have a will you are effectively gambling with your loved ones’ lives. Unmarried couples can be particularly vulnerable as the IHT laws fail to protect a surviving partner (unless a legal civil partnership exists), who can lose property possessions and cash.
Appoint guardians, often family members, for any children in the event that you both pre-decease them.
A will is the essential way to ensure that your estate is shared out exactly as you want it to be and should prevent the break out of family rows.
Without one, rules for sharing out your estate – called the Laws of Intestacy – could mean your money going to family members who may not need it, or your unmarried partner receiving nothing at all.
Keep your records with your will and update them annually – perhaps a good time to do so is when you complete your tax return. There is no need to tell the Taxman now about what you’ve done. It’ll be up to your executors to submit the details when dealing with your estate. They have a duty not to act negligently, which is what they would be doing if they just treated all your gifts as out of surplus income without proof.
Surviving an Investigation
Top meeting tips
- You can only make one first impression – be polite, never rude.
- Don’t arrive late.
- Never guess – offer to provide an account later.
- Stick to the year in question – not what has gone on since then.
- Don’t feel intimidated – only you know the answers so ask him to explain if you don’t understand.
- Be honest and answer only what you are asked.
- Meetings are never taped.
- Make notes of you own if you wish. Ask questions, it may be the only chance you get.
- Know your rights – do you need professional advice?
- Don’t panic – keep calm.
- Eat and drink something before you go, but never alcohol!
- Put plenty of money in the meter/car park.
- Protect your reputation by keeping it to yourself when you leave the meeting.
- It can be a hugely humbling and shameful experience but remember ‘No one ever died of embarrassment’.
- Never lie
- Never lie
- Oh yes, and finally… NEVER LIE!
What not to say at a meeting…
‘I don’t smoke, drink or go out socially’
They’ve heard it hundreds of times before and the nicotine stains or beer belly are a dead giveaway!
‘I’ve nothing to hide’
Their eyes will glaze over at this, as it seldom turns out to be true, however optimistically you put it across.
‘My accountant told me I could claim for it’
It may be true but responsibility rests with you. Sadly you cannot hide behind your accountant if he’s made a mistake – you are liable for the consequences. Ignorance is not a valid excuse.
‘I don’t need cash’
Try doing without it! Or see how long you can really hang on to that £10 from the cash machine. You may be surprised.
‘I have no hobbies or interests’
OK, if you are sure that the subscription to the golf club won’t show in your cheque stubs or the direct debit for the gym won’t jump out at them, go ahead.
‘I hardly ever use the car privately’
They will check out annual mileage travelled from your MOT certificates etc.
‘But none of my mates give an invoice for all jobs’
Whoops – names and addresses please! The taxman loves to compile a dossier of defaulters with your help. It could be how your enquiry arose!
The taxman allows you to claim tax-free mileage if you use your own car for business. But stick to the allowable rates which currently stand at:
45p per mile for first 10,000 miles
25p per mile thereafter
Your employer however may pay you less than this – so use the taxman to claim a rebate for the difference as below:
Total business miles travelled say 12,000
First 10,000 business miles at 45p per mile £4,000
Next 2,000 business miles at 25p per mile £500
Total tax free mileage entitlement £4,500
Less allowances received from employer £3,000
Excess amount on which tax relief can be claimed £1,500
Contact you own tax office and make your claim!