Accounting and Taxation advice in Hexham, Northumberland

Tax Planning

Points To Ponder

Some quotes from a recent conference on Taxation:

  • Adam Smith: “Tax should be Proportionate”
  • The new Scottish Independent Taxation quotes “Parity Certainty Discretion Simplicity”   
  • We now have 10 times the legislation we had 10 years ago.  It is difficult to see how the tax payer deals with this without advice.
  • You have to accept that “Democracy is expensive” and needs to be paid for.  We feel that you should not pay more tax than you are legally obliged to.

Saying this, all the tax planning that we practise as a practice, is not aggressive.  It is all there in the Inland Revenue manuals. It has just taken us years of training to find it and know how to implement it.

We also offer Taxation Protection Insurance.  Following on from the quote by HMRC about tax investigations that, “We've got what it takes to take what you've got”, the Taxation Protection Insurance will ensure that this does not happen to you.  It is worth bearing in mind that if you have an investigation and no penalty has arisen then the tax protection fees are tax deductible!

Rest assured – your tax planning is in “safe hands” with us.

Normal Tax Planning is Still Possible!

The General Anti-Abuse Rule (GAAR) for tax purposes is targeted at aggressive tax planning. The good news is that “normal” tax planning i.e. organising your affairs in a tax efficient manner, is still possible and HMRC have given us lots of examples in their guidance.

These are just a few of the examples:-

1. NIC saving.  Gifts to employees of assets which are not readily convertible into cash e.g. a car, result in an NIC saving. The employer pays Class 1A NIC on the cost of the asset but the employee pays no NIC.  This is most tax efficient for basic rate taxpayers. This is not caught by the GAAR.

2.    Pilot trusts.  Establishment during lifetime of a series of pilot trusts on different days which will receive legacies on the settlor’s death. As these are not related settlements, each trust will have its own IHT nil rate band, potentially saving significant future IHT after the settlor’s death.  GAAR does not apply.

3.     Discounted gift schemes.  These produce IHT savings if the settlor survives 7 years, while retaining income for the settlor.  Not caught by the GAAR.

4.    Deathbed planning.  This is still possible with inter-spouse transfer of assets with significant latent gains when the transferee is terminally ill. As long as the transferee has full capacity at the time of the gift, and the gift is validly completed prior to death, the GAAR does not apply. 

5.  Sale and leaseback.  This is a specific relief from Stamp Duty Land Tax on sale proceeds and rent payable because it is effectively a financing transaction.  GAAR does not apply

Gift Aid Donations

Many people fail to claim the relief they are due simply because they fail to keep a record of the donations made during the year. 

Gift Aid donations are made net of basic rate tax and effectively attract relief at your top rate of income tax, 40% or 45%. For every £100 which you donate to charity by means of Gift Aid, a sum of £25 will be deemed to have been deducted from the payment in respect of basic-rate tax. The charity is able to recover this sum from the Government. A £100 Gift Aid donation actually costs a higher rate taxpayer £75. The Government pays out £50 in total and the charity receives a total of £125.

 Gift Aid donations are extremely tax efficient if your taxable income:

  • falls between £100,000 and £116,000 so that you lose all or part of your personal allowance, when your marginal tax rate is 60%, or
  • exceeds £150,000 so that you are paying tax at the rate of 50% in 2012/13 or 45% in 2013/14.

The facility to carry back certain donations from one year to the previous year means you can get back some of last year’s tax! Contact us if you want to discuss how to do this.


Small Business run by a 40% taxpayer

Without planning almost 80% of the money earned by a small business owner was eaten up in tax, leaving only just over a fifth of his hard earned money to eventually pass on to his family.  This is a perfect illustration of why saving tax will always be so important and why small business owners will always need someone to fight their cause.

Tax Savings?

Has somebody just rung you up and offered you a tax saving that looks too good to be true?  

My general view on this is if it looks too good to be true it probably is too good to be true!  However there are a number of robust tax schemes out there and if you are keen on an exciting life and the tax saving is enough, it may be worth considering – but not before you apply the “smell” test – simply this – if it doesn’t smell right it probably isn’t!
In order to test this out you need to ask the following questions:

  • Does the scheme have a DOTAS number?
  • Will the scheme organisers let you see Counsel’s opinion?
  • If you see Counsel’s opinion – how much of the scheme does it cover?

If you do go in for one of these you need to make sure that you disclose the DOTAS number to HMRC.  This will mean you will be investigated.  It is then very important that it is the scheme provider who deals with the administration of the investigation, rather than you or your agent.
Using one of these schemes is a bit like putting money on the horses – but somebody has to get lucky!


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