Income tax

No, honestly it is tax deductible as it’s purely for medical reasons…

Published on: 29 Jan 2014

The deadline for submitting income tax returns in the UK is in a couple of days on 31 January. According to the UK tax authorities there are still over 2 million returns that need to be submitted.

income tax deadlineThere are no doubt a lot of people hastily getting their figures together to meet the deadline.

Over in the US, one individual took a somewhat unusual approach to claiming deductions in his tax return.

Brooklyn Tax Lawyer, William G. Halby, kept records of his visits to, um how can I say this, but let’s just say certain ladies of the night that provide a certain adult service.

He subsequently claimed the expenses of these visits as tax deductible medical expenses on his tax return.

Mr Halby was quite open about claiming the expenses and as a Tax Lawyer he represented himself at the State of New York Tax Tribunal when the tax authorities argued the expenses were not tax deductible.

Now this wasn’t a small amount which he tried to put in as a tax deduction. Over a 4 year period he claimed expenses of $322,000 for what he felt were for medical purposes.

In one year alone he claimed “medical expenses” on his tax return which were itemised in detail and amounted to over $110,000.

Now this got the accountant in me thinking about these figures and after spending a brief couple of days reviewing some of the New York Agency websites where these ladies advertise their services, I’ve found that the average price for a “consultation” is in the region of $500.

This means that on average Mr Halby made 220 “medical visits” in one year alone.

Undertaking this number of visits and then claiming them on his tax return is arguably proof of both dedication to solving his medical problem as well as maintaining suitable and sufficient records for tax purposes.

All of his expenses were however rejected by the Tax Tribunal. The full text of the Tribunal’s decision can be found here.

Mr Halby is aged 78 and is currently single.

Would you be happy if you won an Olympic medal and this happened?

Published on: 08 Aug 2012

Did you know that if you win a medal at the Olympics then you will be taxed on it?

The above statement isn’t true for residents of every country but if you’re an American then unfortunately for you it’s true.

So you’ve spent years training to perfect your sport. The big Olympic day arrives and you are successful and win a medal. Surely, this is the pinnacle of any sportsman’s career?

If an American athlete is successful at the Olympics then it is also good news for the American tax authorities as under US tax laws anybody that wins an Olympic medal has to add the value of that medal to their taxable income.

This in itself raises an interesting question as to what is the “value” of an Olympic medal as I’m sure most successful Olympians consider their medal to be priceless.

According to information released by the organisation Americans for Tax Reform though “at today’s commodity prices, the value of a gold medal is about $675. A silver medal is worth about $385 while a bronze medal is worth under $5” (although personally I doubt Usain Bolt would sell his 100m gold medal for $675…).

The US Olympic committee also award cash prizes to successful medallists ($25,000 for gold, $15,000 silver and $10,000 for bronze).

Adding the value of the medal to the cash prize and then applying the 35% top rate of income tax in the US gives a tax bill per Olympic medal of:

Gold medal – $8,986
Silver medal – $5,385
Bronze medal – $3,502

As at the time of writing the US team had 34 gold, 22 silver and 25 bronze medals. This would give the US tax authorities over $500,000 of tax revenue.

So if you’re a successful American Olympic medallist then first of all many congratulations on your sporting success and secondly, don’t forget to settle your tax bill…

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…

What’s Napoleon got to do with today’s UK budget?

Published on: 23 Mar 2011

Most people don’t enjoy paying tax. It’s a difficult balancing act for any government as they need tax revenue to fund certain public services but at the same time they can become unpopular (and hence out of a job!) as a result of excessive personal tax burdens.

Income tax in the UK has been around a long time and its introduction involves their close neighbour, France.

Whilst relationships between the UK and France are very cordial at the moment, this hasn’t always been the case.

Way back in 1798, British forces under the leadership of the Duke of Wellington were at war with Napoleon’s French forces. The cost of the war was weighing heavily on British resources and the national debt was mounting up.

As a result, in 1799 “certain duties upon income” were imposed on a temporary basis with the aim of providing greater “aid and contribution for the prosecution of the war” against Napoleon.

The first rate of UK income tax was 10% and this was applied to the total income of the taxpayer from all sources in excess of £60. Given that the top rate of income tax in the UK is currently 50% I’m sure that some taxpayers would more than welcome the reinstatement of the original rate of 10%!

Interestingly enough though, income tax is still technically a ‘temporary’ tax. It expires each year on 5 April and Parliament has to reapply it by an annual Finance Act.

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.

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…

Free use of an Audi A6? Not quite as don’t forget the tax on the benefit.

Published on: 05 May 2010

I met up with a good friend of mine the other evening. He was rather excited as he was in the process of choosing a new company car. As part of his remuneration package he’s lucky enough to be given a company car and this car gets replaced every 3 years.

He’ll shortly be provided with the use of an Audi A6 TDI SE company car. He’s obviously done his homework though as when another friend who was with us said that it must be nice to be given the free use of a car he rightly pointed out that there is a tax benefit in kind on the car and had worked out that the benefit for the tax year 2009/10 was £9,506.

His top rate of tax is 40% so the actual tax he will be paying for the use of the car will be £3,802 or £317 per month. He was right therefore in pointing out that although the car was provided for his use free of charge by his employer he would be paying something for it in terms of tax.

For any F6 (UK) or P6(UK) students out there who want to check his calculations then the list price of the car is £36,560 and the CO2 emissions are 179g/km (and don’t forget the 3% extra seeing as it was a diesel!)

Avoiding or Evading? Do the tax authorities care…

Published on: 12 Feb 2010

Taxation and football have been in the news this week in the UK.

First of all we had winding up orders threatened on Southend, Cardiff City and the Premier League team Portsmouth on Wednesday. If a winding up order happens the clubs as corporate entities will be liquidated. In simple terms this means that the football clubs cease to exist.

The courts have allowed all of them a “stay of execution” but it’s not a great deal of time. Portsmouth, for example has to prepare a “statement of affairs” by 4pm next Wednesday.

The reason for the winding up order on Portsmouth is that HMRC (the UK tax authorities) took them to court over an unpaid tax bill of over £7 million. Whilst there are lots of emotional and community issues behind winding up a football club, HMRC take the view that it is simply another business that despite repeated requests has not settled its debt.

Another tax / football story in the press this week was yesterday when Harry Redknapp, the Tottenham Hotspur manager, was charged with tax evasion. He allegedly evaded tax on a payment made to him in Monaco. The case was adjourned to April.

This leads to a point which students often get confused about. Namely, the difference between “tax evasion” and “tax avoidance”.

“Tax evasion” involves methods of illegally reducing tax liabilities. “Tax avoidance” however is legitimately minimizing tax liabilities. It should be noted though that “tax avoidance” doesn’t sound particularly legitimate (even though it is) so a number of advisers are now referring to “tax avoidance” as “tax mitigation”!

All of this could be of little interest to the supporters of Portsmouth though if they are wound up next Wednesday. We shall wait and see.

31 January or (31 January minus 7 days) deadline?

Published on: 29 Jan 2010

Well it only seems like yesterday that we posted about the 31 October deadline for submitting the hard copy paper income tax returns. Today is 29 January and perhaps more importantly if you’re a UK tax payer who has yet to submit your Income Tax Return, Sunday is 31 January.

The deadline for submitting your UK tax return electronically is 31 January following the tax year in question. So for example, the deadline for submitting your tax return electronically for tax year 2008/09 (6 April 2008 to 5 April 2009) is 31 January 2010 – i.e. this Sunday! If you haven’t submitted your tax return yet then you’ve probably got a busy weekend ahead of you.

If you’re in the UK then there really is no excuse for forgetting the deadline. Moira Stewart, who worked for the BBC for over 30 years, has been fronting a campaign by HMRC to remind tax payers about the deadline. TV, radio and press adverts have been bombarding us in the UK for the last month or so.

What surprises a lot of people though is that when a tax payer registers for the online service they are sent details of their user name and password through the post. HMRC take up to 7 working days to register site users so if you were planning on spending this weekend doing your electronic tax return but have yet to register on the HMRC site then unfortunately you will receive the £100 fine for late submission as you won’t be registered before the 31 January deadline and hence won’t be able to submit the return before the deadline.

What is also important to remember is that 31 January 2010 is also the deadline for paying any outstanding amounts of tax for 2008/09. Payment of any outstanding tax after this date will be liable to interest.

The ExP Group