Financial
misunderstandings Top 10 tax
O
ver the years, Martin Aitken & Co have cont r ibut ed articles to
various publications on tax matters. Two old favourites are ‘comments on the current budget’ and ‘top ten tax tips’. At the time of writing, the Chancellor has still to deliver his message to the nation, so no budget comments yet! This time, instead of tax
tips, my advice focuses on tax pitfalls. So, if your return is scrutinised, then at least the tax pitfalls have been considered and you have had the chance to deal with any issues well before the inspector comes calling. My top tips look at tax misun-
derstandings, those we have often observed and corrected when advising new clients. HM Revenue & Customs’
(HMRC) new penalty regime is now extremely harsh. In the good old days, when HMRC inspectors really did look like Hector the Inspector, a misde- meanour may have been met with a knowing wink and a slap on the wrist. Now, if you think more along the lines of a sharp blow to the stomach, you can imagine how different life is when dealing with Hector. Look at the HMRC website
and you will see penalties galore – the list is long and the correction of errors can be very costly. Anyway, for the
avoidance of doubt, here are some common things to note and avoid: ı. Don’t put your spouse through the books if he/she is not involved in any way with the administration of your practice. Using up their ‘tax-free’ personal allowance will provide you with tax-
deductible expenditure, but is hard to justify if they have a full time job elsewhere. 2. Training sessions for refresher courses and confer- ences do not constitute a family holiday to Disney World. Remember, however, that the costs of attending training courses to update your existing skills are tax deductible. 3. Car claims and motor expenses are under the microscope. It’s difficult to justify ı00 per cent business use of a Range Rover or an Aston Martin and a sensible approach may be to move away from a bulk per cent disallowance and consider a mileage allowance claim for business miles. 4. If you are trading as a limited company, then a car is almost certainly not a good idea. A mileage claim for any motoring costs is prefer- able over a costly benefit in kind (unless, of course, you consider a tax-effective energy saving vehicle
ABOUT THE AUTHOR
Stephen Neville is a Partner at Martin Aitken & Co. Stephen is contactable at
scn@maco.co.uk Alternatively, you can telephone on 0141 272 0000, or find out more about Martin Aitken & Co by looking at their website
www.maco.co.uk
– where the benefit in kind might not be as severe). 5. A professional loan is not your mortgage. Interest on a loan to introduce funds into the practice is, however, eligible for tax relief. If you raise the funds through your existing mortgage which is under an offset arrangement, you need to be careful when calculating the allowable proportion of the interest. The split is important, so you don’t lose any of the tax relief available. 6. Commonly, house expenses are claimed if you use a room as an office in your own home. This can, however, lead to capital gains tax problems when selling your home if the room has been used exclu- sively for business purposes. To avoid this trap, never use any room exclusively for busi- ness purposes. 7. Making people self- employed does not get you out of National Insurance. On a PAYE compliance visit, an employment status ques- tionnaire would be
completed. While you are in one
room, another HMRC officer could be giving your practice nurse
a grilling in another. The outcome may not be as you expect
and could be very unpleasant. 8. Salaried posts (taxed under PAYE) still need to be returned on your tax return. Think of PAYE as payment on account of the tax due and not the full tax bill itself on that income. 9. Tax enquiry insurance is a great idea. In the event of an enquiry, the fees incurred in defending your case would be covered under the insurance scheme; however, the cover would not include any addi- tional tax payable. ı0. Moving all your money to an offshore bank account is no longer an option either. There is a worldwide clamp down on offshore tax havens. A good professional adviser
will, first and foremost, guide you through the amassing piles of tax law, but he or she should also not be afraid to point out a grey area from one that is well and truly black. It’s always an easy option
to tell you to literally shove the kitchen sink through ‘repairs and renewals’, but, with the new powers available to HMRC and the various new initiatives, the easy option could result in an HMRC enquiry ending in a huge tax bill with interest and penalties to match. Would you consider this
approach worth this risk to save a few hundred pounds here and there? Anyone who says so is not providing you with good advice.
Scottish Dental magazine 77
Putting the kitchen sink through the books is not necessarily a good idea, warns Stephen Neville
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