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.

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?

I wonder who listens because nobody seems to be paying attention. I recently shut the bulk of a uk office and moved it to another country because of the mess the UK is in. More will follow.

I see they are introducing a minimun wage for youngsters now. I don't employ people that young or pay that little. But I definately ain't now.

I would have thought that busineses outside the SE are going to suffer as I guess they must pay below minimun wage due to lower living standards, that's crazy.

Confirmation: (Are people going to have to return gifts?)

Pre owned assets

From April 2005 there will be an income tax charge on those who have owned assets (such as the family home) and have then gifted them away but retained some benefit in relation to them (such as continuing to live in it).

This proposal has been much criticised for being a tax on the elderly and for being retrospective in nature. Those criticisms remain. Quite why Gordon Brown prefers to use income tax rather than making a change to inheritance tax rules is unclear. Once again, the detailed rules are not available, and it really is unacceptable that the workings of such a dramatic new tax regime are being kept secret