Belfast Telegraph

Time to stamp out those silly|tax rumours

By Adrian Huston

Carrying out dodgy dealings like Arthur Daley in Minder can land you in big troubleHAVING spent the last 22 years specialising in tax, I am well used to hearing what people think is the way this or that works as far as tax is concerned. And boy do I hear a lot of rubbish.

One of the problems is that often the person handing out duff information or advice is someone the listener respects — so they swallow it.

If your bank manager, solicitor or company director friend says something, you assume it must be right.

As the Gershwin song, popularised by Cher and Jamie Callum, goes: “It ain’t necessarily so...”

Today I am going to put some of the statements you hear where they belong — in the bin. No offence will, I hope, be taken by those that once uttered them.

My motivation is that incorrect statements about tax have got a lot of people into a lot of bother over the years. For that reason I will give you my view on tax pronouncements.

What I will do is put in quotation marks what I hear people have been told. Then I will tell you my version of the right way of it.

l “If you’re making no money at renting, you don’t have to tell the Revenue.”

If you receive rental income you have an obligation to tell the Revenue about it, regardless of whether you think you are making any money at it.

I say think because sometimes after tax adjustments you end up with taxable rents, even if they did not cover your mortgage payments.

l “My money is offshore and the taxman won’t find out about it.”

Recent changes in international information-swapping have been aimed at cutting down on money-laundering.

While these are aimed at large scale criminals (drug-dealers etc) they will also catch out small scale criminals like the Ulster businessman who hides some of his business income in a bank account in Liechtenstein or Jersey.

And let’s not beat about the bush — tax evasion is now classed as a crime and the punishment can be severe. In the next two years the Revenue will be obtaining more information about accounts in the Channel Islands, and information from tax-havens worldwide is increasing all the time.

The Revenue last year had a tax amnesty for UK people with money offshore. They brought in £400m — and I think they were only scratching the surface. There’s much more out there and the net is most certainly closing.

l “I transferred my home to my daughter for tax reasons.”

This used to be very attractive — with potential savings in terms of Inheritance Tax and nursing home fees should you end up in a home.

Unfortunately recent legislation came in which was backdated to cover transfers since 1986. If you gave away your home but continue to live in it then you (the former owner) must pay a new tax. It is called a Pre-Owned Assets Tax.

The alternative is to pay the new owner a full market rent. They must the, of course declare that rent each year. This area has become a real mess and professional advice is useful if you live in a house you previously owned.

l “Pay me in cash and I’ll not charge you the VAT.”

This statement may be true but it masks a bigger set of lies than you think. Let’s say the plumber wants £100 (or £117.50 if you pay by cheque and he ‘adds the VAT’.) If you pay him £117.50 he gives £17.50 to the VAT-man.

Then he is taxed on the £100, leaving him with as little as £60. But if you go along with his fiddle you give him £100. The VAT-man gets nothing. However, the cash will never be declared for income tax either. So the plumber gets to keep the whole £100.

So let’s summarise who really gains here from this conspiracy to defraud the Revenue. You the customer have saved £17.50, but the plumber has saved up to £40. So the big winner is the plumber. My advice — don’t do it.

l “My customers pay me cash so I don’t have to declare it.”

As you may have guessed from the above, of course the plumber should declare cash he gets. And of course much of the cash received for jobs (and not just in the building industry) never gets declared.

What these tax fiddlers forget is that tax officials live in the community too. So if you repaired the bumper of a little old lady’s car for £100 cash, you may not be able to relax after all.

That little old lady might have a grand-daughter who works for the Revenue. So the details of that repair job in September 2008 might end up on your file. What then if you didn’t declare it? Guilty as charged!

I could go on, but that will do for today. As they say on Crimewatch, sleep tight!

Adrian Huston, a former tax inspector, is a director of Belfast tax and accountancy firm Huston & Co — or 028 9080 6080.

Belfast Telegraph