Tax Insider Newsletter Bundle

HMRC's Powers on Tax Return Errors: Not As Broad As They Seem

Tax return errors by individuals are not uncommon but unfortunately can have serious consequences.
For example, HM Revenue and Customs (HMRC) can impose penalties for inaccuracies in tax returns. The level of penalty broadly depends on whether the inaccuracy was ‘careless’ or ‘deliberate but not concealed’ or ‘deliberate and concealed’, subject to reductions based on the degree to which the person discloses the inaccuracy to HMRC. 

Mark McLaughlin highlights an important case which indicates a limitation in the scope of certain HMRC powers.

For the young, talk of pensions may seem a low priority given the competing financial demands of housing, student loans and living costs. Retirement planning can feel distant and complicated, and tax changes, rumoured and real, such as potential inheritance tax liabilities and possible reductions in tax-free lump sums, may cast further doubt on future returns. 
 
Richard Curtis considers whether saving in a lifetime individual savings account is a viable alternative to a pension.

Running a Business From Home: Are You Reclaiming All the VAT You Could?

If a business is run from home or has an office at home, it is entitled to claim back the VAT on any legitimate business expenses. This means that if the business incurs extra costs in running the business from home, it can reclaim the VAT on those costs, as well as a proportion of the running costs of the house.

For example, if a company’s business operates from a director’s home and the office takes up 20% of the floor space of the house; HMRC will allow it to reclaim 20% of the VAT on the utility bills such as gas and electricity.

Andrew Needham looks at the VAT consequences of working from home and what a business can and cannot recover VAT on.

Gifts From Surplus Income: The IHT Exemption Most People Overlook

Many people have excess yearly income, which can usefully be classed as gifts of income and as such can form excess ‘normal expenditure’ out of income within IHTA 1984, s 21(1). 
In effect, if it can be shown as an excess of income surplus to requirements for the usual standard of living and gifted, it is exempt from inheritance tax. 

Jon Golding looks at the exempting of IHT gifts made out of excess normal income claims to reduce an inheritance tax liability.

Investment Bonds: The Wrapper You Shouldn't Overlook

Investment bonds are a tax-efficient way to hold investments, similar to other ‘wrappers’ (individual savings accounts, pensions, etc). With increasing capital gains tax (CGT) rates, they are worth considering – particularly for higher earners planning for retirement. 

Investment bonds are established with an insurance company and funded with a lump sum or regular cash contributions. The contributions are usually invested into funds (unit trusts, exchange-traded funds, etc.), which can be accessed at any time through full or partial surrenders. 

Tristan Noyes looks at investment bonds, an often-overlooked investment wrapper. 

Inter Spouse Transfers: Are You Using Them Effectively?

For married couples and civil partners, one of the simplest and most effective tax planning tools is the ability to transfer assets between each other without triggering an immediate tax charge. Whichever tax is being considered, inter-spouse transfers can lower a household's overall tax bill. 

However, some important conditions apply (NB in this article, spouses also refers to civil partners.

Jennifer Adams considers how inter-spouse transfers can help married couples and civil partners reduce their tax bills and highlights the key rules and conditions that apply.

Deducting Loans for IHT: Not Every Debt Qualifies

Within a death estate and an IHT400 account, the value of liabilities can generally be deducted when calculating the IHT liability (under IHTA 1984, s 5(5)). 
Debts which are allowable for inheritance tax (IHT) purposes have to be either debts imposed by law (tax being the most common, but also local taxes such as council tax, and fines), or debts which the deceased purchased for money or money’s worth. One criterion is that the debts must be legally enforceable (unless statute-barred, including student loans) – they cannot be loans which might only be morally enforceable or if there is no written evidence. Another criterion is that the debt was actually to be repaid by the estate unless there was a good commercial reason and the main purposes (or one of them) for leaving the loan unpaid was not to secure a tax advantage.

Chris Thorpe outlines some of the issues surrounding deducting loans for inheritance tax purposes.

Q&As with Arthur Weller

Dividends or bonuses? We can work it out!

Consider the following scenario:

'On a wintry sunny morning, Alan was reviewing his company’s January 2024 management accounts. Alan was the sole director and 100% shareholder of Llandudno Hotels Ltd, which operated two large hotels in Llandudno. The business was on course to healthy pre-tax profit of around £650,000 for the year ended 31 March 2024. Alan had been planning to pay himself a substantial ‘bonus’ before the year-end'. 

What does Alan do?

Peter Rayney examines an owner-manager’s cash extraction following the numerous tax and National Insurance contributions changes.

Use them or lose them: 2023/24 tax allowances

As the tax year draws to a close, it is prudent to review one’s 2023/24 tax allowances and consider whether there is scope for utilising any unused allowances so they are not lost. 

Sarah Bradford explores options for using 2023/24 tax allowances so they are not wasted.

Record-keeping in a digital age

Lee Sharpe looks at taxpayers’ record-keeping obligations in light of HMRC’s inexorable march to digital everything (almost).

Historically, HMRC has been quite relaxed about whether original records must be maintained or digital facsimiles (scans, etc.). 

Trap for business owners seeking CGT incorporation relief

HM Revenue and Customs (HMRC) recently commenced a ‘One to Many’ campaign, targeting taxpayers who incorporated property businesses in the tax year 2017/18 but reported no capital gains tax (CGT) liability in their tax returns on the basis that ‘incorporation relief’ applied in full. 

Mark McLaughlin highlights a potential trap for business owners seeking capital gains tax incorporation relief.

Q&As with Arthur Weller