I come across interesting things from time to time and rather than start a new thread each time - I thought one to cover Tax would be more interesting.

So to start the thread:

Employees that drive company cars should consider buying a minimal interest in the vehicle provided by their employer and avoid paying thousands of pounds in income tax, says Wilkins Kennedy.

According to the recent Special Commissioners Decision of Vasili v Christensen SpC 377, the normal rules that determine the taxable benefit for a company owned car do not apply when the employer and employee jointly own the car.

The Commissioners decided that where an employee owned a 5% interest in a car of which he had the exclusive use (the other 95% being owned by his employer) he was taxable under ICTA 1988, s154 and s156 on the benefit of the employer's 95% share made available for his exclusive use rather than on the cash equivalent of the benefit of the car as a whole under s157.

The taxable benefit on a car owned outright by a company is calculated as a percentage of the list price of the car brand new. That percentage depends on the CO2 emissions of the car, which can be up to 35%. (See table). The car benefit charge covers the provision of the car and all running costs excluding petrol.

"The effect of joint ownership changes the value on which the taxable benefit is measured from the list price of the car brand new to the market value of the car on the date it is provided. If the date the car is provided is several years after its initial registration its value will be substantially less."

The Special Commissioner also decided that joint ownership means the rate of taxable benefit is 20% rather than a maximum rate of 35% typical for a high performance car. Running costs of the car met by the company, such as insurance and servicing, are separate taxable benefits.

IR35: status victory for IT contractor


IT contractor Roger Tilbury has won his employment status case before the Special Commissioners.

Issues of substitution and control were key factors in the case of Tilbury Consulting Limited v Margaret Gittins (Her Majesty's Inspector of Taxes).

The Revenue had sought to show that Tilbury was a disguised employee of his end client, Ford Motor Company. His contract was actually with Compuware, to which Ford had outsourced its application management centre.

In handing down his nine page judgement - Mr Stephen Oliver QC concentrated on the facts of the case. These included the fact that Tilbury Consulting Limited had the 'qualified right' to send a substitute but had never exercised this, that it was not part of the direct manager from Ford's function to tell Tilbury how to do the work, and that Tilbury had a different colour pass from the Ford employee pass which did not entitle him to use of the gym. He also noted that Tilbury was paid by the hour, and that it was not a matter of concern to Ford who provided the services, or that some of the work was undertaken at Tilbury Consulting's premises.

He concluded that Mr Tilbury would not have been regarded as Ford's employee, firstly because it did not have operational control over how the project was undertaken, secondly because of the right of substitution between Compuware and Ford and between Tilbury Consulting and Compuware, and finally because Tilbury was not part of Ford's business or undertaking. These factors were, in his opinion, inconsistent with employment.

On receiving the judgement, 56 year old Tilbury said:

"I'm delighted to have won, and relieved that it's over. It has taken more than two very stressful years to get to this point, during which time I had to put all investment in my business on hold, for fear of tying up funds."

Commenting on the outcome, his accountants said:

"We're very pleased with the judgement. This significant case re-establishes the core principles of defining an employment relationship based upon the actual contract and the facts, rather than trying to construct a notional contract intended to imply employment.

"Furthermore, it recognises even a fettered substitution clause as being inconsistent with employment, despite never having been exercised. Roger has been working for the same end client for nine years, being paid by the hour, and it's encouraging to note that the issues of control and substitution were deemed more important in determining his employment status."

In some further analysis of the case it is explained that Stephen Oliver had viewed the issue of status from a different angle from that used in the Lime-IT case. In the current case he had simply said here are the facts, and if they were to form a hypothetical contract would any of these facts be inconsistent with a contract of employment.

When looked at from that viewpoint, it was understandable why his conclusion refers almost exclusively to the lack of control and the right of substitution as nearly everyone, with the exception of the Inland Revenue, has long since accepted that these are factors inconsistent with employment. Mr Oliver did not cite any case law to support his viewpoint.

The Tilbury decision is useful for the following reasons:

1. The Revenue are arguing in many cases, as they did here, that where there is an agent between the client and the contractor and the client would only accept a substitute from the agent, there is no right of substitution. The Revenue has argued this even where there is a right in both the contractor/agent and agent/client contracts. The Revenue's argument was not accepted by the Special Commissioner.

2. The Revenue argued that the Synaptek case meant that in IR35 situations where a substitute is not sent, the right of substitution is not important. This argument was not accepted by the Special Commissioner.

3. The Revenue has argued that IR35 means that they start by assuming that the client contracts directly with the worker, and then decide what the terms of that contract will be. Mr Oliver said that one must use 'the facts as they existed during the period' as the basis for the hypothetical contract. This is very important. At one point the Revenue actually said that one started by presuming that Ford employed Mr Tilbury and one then had to decide whether this was under a contract of service. But this as a "self fulfilling prophecy" and noted that this approach had similarly been dismissed by the Special Commissioner.

4. The Revenue focussed on the similarities between Mr Tilbury and an employee of Ford, whereas the Special Commissioner focused on the differences and subsequently found these to be inconsistent with an employment relationship. This is the most important part of the case.

In conclusion, this case offers hope to IT contractors worried about IR35. Mr Tilbury had worked at the same client for nine years, had never sent a substitute and was paid by the hour, and was still able to escape IR35.

Very good news indeed.

Yes it is, especially as I know there are loads of IT contractors who post in the traders room!

1.Often the employer is an employee of his Limited Company.Does the case
cover this potentially extremely complex area ?

2.Surely the Revenues position will be altered to circumvent the ruling ?

In this case Roger Tilbury was an employee of his own Limited Company.

IR35 is when a person is an employee of their own Limited Company but has to pay NIC & Income tax on the total amount invoiced, without being allowed a deduction of the companies trading expenses. This is because under IR35 the Inland Revenue considered the person an employee in principle of another company and only set up of their own company to avoid NIC & tax - and therefore their own company would become liable for NIC & IT as if the company never existed in the first place.

The Revenue cannot alter their position to circumvent the ruling, as it this is all about the fact their position actually was incorrectly applied in this (and many other IR35 cases).

ajren
1. Did you mean to say "the contractor is often a employee of his Limited Company"? - This is almost always the situation where IR35 disputes arise.

2. The IR35 rules were carefully worded to target a specific type of company/client relationship without affecting other types. In practise and case law it is becoming increasingly difficult for them to achieve this distinction. It is hard to imagine that they can improve their position with new rules.

You are both right.

I read it far too quickly to understand it properly.I am Irish and do not
know anything about U.K.taxation-apart from the what is in the posts.

Does this mean you are in Ireland & Irish (and your IR don't try and stop people using every opportunity to benefit from the tax system), or just Irish?

I guess that the Revenue may appeal the case as they tend to do when important cases go against them. So this may not be the end of it.

I don't think the Revenue will appeal. (They have not done so for a long time, and they have lost a lot of very important cases recently) If they did and they lost again, it would be a nail in the coffin for IR35 for ever and they won't take the chance while they still have grey areas they may suceed with.

Ref:- little woman : Irish
Hi,
I am in Spain at this moment.

I hope you are having better weather than we are here - Its a typical english Nov day, damp, grey although not that cold!

Court says Revenue can make discovery out of time

Simon Langham (Inspector of Taxes) v Frederick Veltema [2004] EWCA Civ 193Court of Appeal26th February 2004

The Court of Appeal has ruled that discovery assessments can be made by the Revenue out of time.

Mr Veltema was given a house and he entered 100,000 on his tax return as its value, as per advice received. The Inspector of Taxes acknowledged the return and stated that there had been no need to amend it. Later, the Inspector formed the view that the house was worth 145,000 and sought to make a discovery assessment for the additional 45,000.

The General Commissioners and the High Court both held that the Inspector was unable to make a discovery. It could not be said that, at the time when the Inspector informed Mr Veltema his return had been processed without amendment, the Inspector could not have been reasonably expected, on the basis of the information made available to him before that time, to be aware that the house's value exceeded 100,000. Mr Justice Park said that the matter should have been referred straight away to the District Valuer.

But the Court of Appeal has now allowed the Revenue's appeal.

The Court took the view that if a taxpayer makes an inaccurate self-assessment but without any fraud or negligence on his part, it would frustrate the aims of the self-assessment scheme, namely simplicity and early finality of assessment to tax, to interpret section 29(5), Taxes Management Act 1970 so as to introduce an obligation on inspectors to conduct an immediate and possibly time-consuming scrutiny of self-assessment returns when they did not disclose insufficiency, but only circumstances further investigation of which might or might not show it (paragraph 32 of the judgment).

Moreover the categories in section 29(6) constituted an exhaustive definition of "information made available to an officer of the Board" for the purpose of section 29(5). The key to the scheme was that the inspector was to be shut out from making a discovery assessment under section 29 only when the taxpayer or his representatives, in making a honest and accurate return, had clearly alerted him to the insufficiency of the assessment, not where the inspector might have some other information, not normally part of his checks, that might put the sufficiency of the assessment in question.

So it looks like the Revenue can take their time in enquiring into a return, and with the court's backing!

Homeowners to be taxed in Budget proposals

 More criticism has been made of the proposals to impose a yearly income tax charge on people who enjoy the use of assets which they previously owned. The proposals are expected to be set out in the Budget on 17 March.

Citywire reports criticism of the proposed legislation from Gerry Brown of Scottish Life International.

Mr. Brown hits out at the retrospective nature of the proposals: 'For example, say a widow, with total assets of 150,000 gifted her house, worth 100,000, to her only daughter in 1999 and continued to live in it. The widow is the former owner of the flat and she is continuing to enjoy the benefit of using it. She is thus within the scope of the new tax.'

Mr. Brown calculates that the flat could attract an annual rent of 6,000 and that if the widow is a basic rate taxpayer, she would have an annual income tax charge of 1,320. This would increase year by year as the value of the flat increased.

Meanwhile the widow will receive no additional cash inflows to meet this tax charge. She will be much worse off in cash terms. She will also have to complete a self assessment tax return, possibly for the first time.

The new proposed treatment of 'pre-owned assets' will also catch those who have entered into inheritance tax avoidance schemes using trusts and loans. Not all of these will be capable of being unwound.

If the beneficiaries are minor children, the trustees would be failing in their responsibilities if they allowed the original donor to reclaim the assets put into the trust.

The proposals will impose a yearly income tax charge on people who enjoy the use of assets, which they previously owned. This charge is not intended as an alternative to inheritance tax but is an additional tax and one which will operate on arrangements set up for legitimate purposes, whenever established. The charge will have retrospective effect.

'We would urge the Inland Revenue to re-examine urgently the implications of its proposals and amend those aspects causing hardship, additional compliance costs and unwarranted tax charges,' said Brown.

Paper Boys - Scraping the Barrel

Evidence suggests that schoolchildren who deliver newspapers are the latest target of the Chancellor.

Newsquest, Britain's second biggest regional newspaper group, has been informed by the Inland Revenue that a form P46 must be completed for every paper boy or girl. The company's request for a dispensation for those aged under 16 was rejected.

As a result of this ruling and other regulation, all employees of the group, including schoolchildren, must also open bank accounts as a condition of their employment. Paper boys and girls unable to open a bank account or sign the P46 will 'have their employment terminated'.

A spokesman for the Inland Revenue has denied that the Department was mounting a campaign to target newspaper delivery boys and girls. Whether or not this is true, the big question is 'where will the Revenue strike next?' The Department might consider making sure that large multinational quoted companies pay 'the correct amount of tax'. Perhaps not, however, as the Revenue would be faced by opponents as big and powerful as itself. There are easier pickings elsewhere among individual taxpayers and the small business community

Budget on Wednesday

Interesting articles there LW. I wonder if the Chancellor has overlooked the possibility af taxing, dare I say it, people like myself who receive by email a free daily copy of The Scotsman, large potential there!! and what about all these computor terminals that we are all using, all going untaxed, except of course small items like VAT and corporation tax etc.
Yes I think we have a lot more obscure taxes to come from the present 'team'
Looking forward to Wednesday, I don't think!!

I received this a part of a editorial note from an accountancy newsletter:

... where there is insecurity, we can provide security, where
opportunity has been limited we can extend it, where justice has
been denied, we can provide it, and where there has been poverty,
we can ensure that there is prosperity," said Gordon Brown last
week at a conference in Manchester.

With the Budget just ahead of us, the Chancellor's words appear
a little empty when security for many has been crushed by tax
raids on pension funds, where opportunity is stunted by IR35,
s660A and now IR5.91, where justice is still denied men who
cannot claim the widower's bereavement allowance, where tax
credit claimants are reduced to poverty because the system
doesn't work, and where prosperity is held back by the growing
complexity of tax regulation.

But what really comes through from these annual mission
statements from the Chancellor is that while his tax plans
increasingly hinder the entrepreneurial spirit of the country,
public spending is spiralling out of control, and money is being
wasted on costly tax measures for which no results are ever
published, the tax burden keeps rising and the Budget spin keeps
rotating faster and faster.

So you never know - you could be right!

LW I think if we continue on the present trend we could become a 'Party Political Broadcast' Probably not a bad thing, but does anyone ever listen?