Corporation tax

What type of fine do you get for cheating?

Published on: 12 Oct 2012

McLaren are one of the top Formula One motor racing teams. They are not only experts at ensuring cars are driven fast around racing circuits but they are also experts at ensuring that £34m fines are tax deductible…

Back in 2007 McLaren were fined £34 million pounds because it “had possessed and in some way used proprietary information belonging to Ferrari, and had thereby breached the rules of the FIA’s International Sporting Code to which McLaren was contractually bound”.

Or to put it another way, they had cheated by photocopying an 800 page technical document belonging to Ferrari that detailed the designs of the 2007 Ferrari cars.

Formula One’s governing body, the Federation Internationale de L’Automobile (FIA), weren’t happy about McLaren taking this approach and ordered McLaren to pay a £34m fine which they duly did.

The interesting thing though is that in their UK company tax return McLaren claimed a tax deduction for the fine.

In the UK as well as most countries around the world, fines are not tax deductible. This means that the expense does not reduce the level of profits on which tax is calculated.

McLaren argued though that this particular fine was tax deductible (i.e. the expense could be used to reduce the level of profits on which tax was applied). They said that it wasn’t a statutory fine for breaking the law (which would be non tax deductible) but instead was a fine imposed by their governing body and as such was a genuine business expense incurred in their trade which should be tax deductible.

The UK tax authorities understandably didn’t agree with this viewpoint and the argument went to an independent tax tribunal who surprisingly agreed with McLaren and said that the fine was tax deductible.

A surprising decision and there’s no truth in the rumour that the head of the independent tax tribunal is currently driving around in a McLaren…

Over 1 million people now have to…

Published on: 03 Feb 2012

What have 1.1 million people in the UK got in common as at 1 February 2012?

Well unfortunately for these people the answer is that they owe the UK tax authorities £100.

The deadline for submitting the individual tax return for the tax year ended 5 April 2011 was 31 January 2012 (in case you’re wondering, here’s why the tax year ends on 5th April).

1.1 million people missed the 31 January deadline and were late in submitting their tax return. As a result they will be fined £100 each. This means a rather nice £110 million in extra revenue for the government.

This year the penalty system was different for people that submitted their returns late.

In previous years the fine was £100 but this fine was in fact limited to the amount of tax that was owed. So if somebody had a zero tax liability then there was no real incentive to submit the tax return by 31 January as the fine was restricted to zero.

This year the fine is £100 even if the individual’s tax liability is less than £100.

The fine gets worse as well though with an additional fine of £10 per day being applied if the return is 3 months late. The maximum fine for late submission could be as high as £1,600.

If you are a UK tax resident that has to submit a return but have yet to do so then it’s looking like you’ll be £100 worse off unless you’ve got a reasonable excuse for not submitting your return on time.

There’s no set definition of what is meant by reasonable excuse but it generally includes such things as the death of a close relative (or even your own death but that does seem an extreme way to avoid a £100 penalty), serious illness, loss of documents due to fire, or lack of time to complete the return as you were playing around on facebook.

Finally, for those of you that didn’t spot the mistake in the previous paragraph and are about to attempt one of the UK tax exams then don’t hold your breath expecting a great result…

Who can really be trusted to keep a secret? Accountants or lawyers?

Published on: 01 Nov 2010

When you speak with your lawyer, you can say almost anything and be confident in the knowledge that the lawyer will be able to preserve the confidentiality of your discussion.

Most people probably assume the same thing when having discussions with their accountant, especially in the context of discussing tax planning opportunities with a tax advisor.

Unfortunately, English readers should pay careful attention to the decision in a recent case, R (on the application of Prudential PLC) v HMRC, EWCA Civ 1094 if you would like the full legal citation.

This Court of Appeal decision stated that client privilege only extends between a lawyer and a client.  This means that any discussion between a client and an accountant cannot be guaranteed to be confidential.

This is an English legal case, which is binding in England and Wales only, but the judgment is based on common law, so is likely to be highly influential in jurisdictions based on the English system globally.

As the accountancy and legal professions increasingly compete, especially in the area of tax advice, this gives a significant advantage to the legal profession over the accountancy profession.

Who would you rather seek advice from: a lawyer who you are confident cannot be compelled to reveal the content of your discussion, or an expert accountant who is unable to promise confidentiality?

If you talk to a lawyer about this then they may well say they were pleased that they had this advantage over accountants.

Note of course though that if they felt like it they wouldn’t have to disclose what was said in your conversation…

It’s 2010 so should a Witch pay income tax or not? Well, according to the Romanian government…

Published on: 15 Sep 2010

“Double, double toil and trouble, fire burn, and cauldron bubble” so goes the famous Witch’s chant from Act 4, scene 1 of Macbeth but was a similar chant taking place last week when a potential Witch Tax was rejected by the Romanian Senate?

Like many countries around the world Romania suffered badly during the recession. In an attempt to balance the books the government has undertaken cuts in public sector wages as well as raising the VAT rate.

In a somewhat unusual move last week though, Alin Popoviciu and Cristi Dugulescu, two members of the ruling Democratic Liberal Party drafted a law whereby Witches would have had to produce receipts for the services they performed and hence be taxed on them.

Now whilst the image of Witches queuing up to submit their tax returns may cast an unlikely picture there are a number of interesting issues.

First of all then surely they are just self employed individuals? From a tax point of view they are no different from for example a self employed builder or a self employed accountant who both have to pay income taxes.

Admittedly, from a non tax point of view it probably elicits some interesting expressions on the face of the person who asks them what they do for a living but back to tax and there would be some questions that needed to be answered:

What about Witches training courses? Surely they would be a tax deductible expense?

Would the costs of keeping a black cat be considered a personal expense or an expense of the business?

What about the purchase of a new broom. Would it be a capital or revenue expense?

In another move which no doubt came as a complete surprise for all concerned, fortune tellers were told that they were to be held liable for any incorrect predictions that they made.

The Witches and fortune tellers needn’t have worried too much though as Romania’s Senate voted down the proposal on Tuesday.

Popoviciu allegedly claimed that the lawmakers didn’t implement the law as they were frightened of a Witches’ curse being made on them.

Benjamin Franklin once famously said “In this world nothing can be said to be certain, except death and taxes.”

Maybe the Senators that voted down the Witches tax in Romania were concerned that the two would be combined.

Vodafone and their involvement with CFC (no, not Chelsea Football Club)

Published on: 02 Aug 2010

There’s a pretty good chance that either you or somebody you know has used a Vodafone network.

Vodafone are the world’s largest mobile telecommunication network company and last week they announced better than expected results for the quarter ended 30 June 2010 with revenue rising for the first time since the recession began (rising by 4.8% to £11.3 billion for the 3 months).

Also announced was an agreement with the UK tax authorities over a Controlled Foreign Company (CFC) investigation that dates back to 2001.

In simple terms, CFC is a set of rules which prevent UK companies from avoiding tax by the use of subsidiaries in tax havens around the world. If for example a company pushes profits into a subsidiary in a low tax jurisdiction it would avoid paying the higher rate of tax on these profits in the UK. The UK tax authorities can counter this by applying CFC legislation.

The Vodafone case was a complicated one involving a holding company in Luxembourg. It had made a provision of £2.2 billion for settlement of the dispute but has now agreed to pay £1.25 billion to settle all outstanding CFC liabilities to date as well as reach agreement that no further CFC obligations will occur under current legislation.

This is not only good news for Vodafone but also a number of other multinationals that are currently in negotiations with the tax authorities over CFC issues. It also reportedly signals a more flexible approach by the tax authorities as the new UK government has stated that they wish to make the UK open to international business. Over recent years a number of companies have moved operations away from the UK to for example, Ireland where there is currently no CFC legislation in place.

If you’re heading to the exams next week then do you care whether this is a car or a van?

Published on: 02 Jun 2010

On the way into the office this morning I was stuck in traffic next to a Peugeot 207 vehicle which was identical to the model to the left except that it was red rather than white.

If you’re heading to the ACCA UK stream tax exams on Monday then do you care if this vehicle is a car or a van?

The vehicle is certainly a nice looking Peugeot 207 and whilst most people would say it’s a car the fact that it doesn’t have side windows behind the driver and passenger doors makes it almost certain to be treated as a van by the tax authorities.

The good news is that you’re NOT going to be examined on the detailed rules of what is a car and what is a van (or lorry or truck for that matter) so should you care about the distinction between cars and vans?

The short answer is that yes, you should care!

I’m personally pretty certain that the exams on Monday will include a capital allowance computation which involves cars or commercial vehicles such as lorries or vans.

There are some new rules being examined for the first time by the ACCA this session (see chapter 5 of our F6 ExPress notes for a quick summary) so I think this has got a good chance of being examined.

In summary, vans and lorries are commercial vehicles and are therefore eligible for the AIA and FYA within capital allowances. Cars on the other hand do NOT qualify for the AIA or FYA (unless a low emission car which gets a 100% FYA).

Also, don’t forget to look out for the CO2 emission rate of the car as if it’s >160g/km then it only gets a 10% WDA as part of the special rate pool.

On the VAT side of things then VAT can be reclaimed on lorries and vans unlike with cars where it is not possible to treat the VAT as input VAT.

Being a tax tutor I’m one of those strange people that find all of this interesting and apologies to any of you that don’t share my excitement at discussing the distinction between cars and lorries…

We’ve just passed 31 December. So what?

Published on: 06 Jan 2010

As we start the new year people who are not students of UK tax maybe mistakenly assume that we have just finished a fiscal year on 31 December and have started a new fiscal year on 1 January.

As good tax students we know however that this is not true! The fiscal year (tax year) for individuals in the UK ends on 5 April and starts on 6 April. For companies the financial year start on 1 April and end on 31 March although remember that companies are free to choose their accounting period end.

Other countries have an assortment of fiscal year ends. Individuals in Japan and UAE for example have a fiscal year ending on 31 December. In the US the fiscal year ends on 30 September and in Australia it’s 30 June. This is all very interesting but don’t worry it won’t be examined.

However, what is important with regard to the start of the year is that all of us here at ExP would like to wish you all a very Happy New Year and all the very best in your exams, professional and personal lives for 2010.

Marks vs revenue

Published on: 04 Oct 2009

We know the allocation of marks in the exam between the various taxes but what about the revenue generated?

ACCA F6 students will be well aware that the vast majority of marks available in the exam are in connection with income tax and corporation tax. Other taxes such as CGT and VAT also play an important part but not to the extent that income tax and corporation tax do.

Whilst these two taxes represent the bulk of the marks in the exam, how does it compare with the split of revenue generated by the various taxes?

HMRC have published their statistics for 2008/09 which provide the following information:

Total £439bn 100%
Income tax £148bn 33%
National insurance £97bn 22%
VAT £78bn 18%
Corporation tax £43bn 10%
CGT £8bn 2%

Over 50% of revenue is generated from income tax and national insurance alone. CGT on the other hand only generates 2% of the revenue.

I’m sure however that the key % in students minds at the moment is the 50% they need in the exams next month so good luck with your studies in the next couple of weeks!

The ExP Group