IF you believe the words of the song, it ain’t what you do; it’s the way that you do it. It is certainly true when you are dealing with tax.
Take the chap I spoke to who dealt with his own tax affairs and who had invested a very substantial amount of money in a new business.
He was shocked when HMRC refused his claim for tax relief and he asked me for an opinion.
I had to tell him that HMRC was right.
He had bought the business and then transferred it to a new company, in exchange for shares in that company.
He then claimed relief under the Enterprise Investment Scheme.
What he should have done was put his cash in the new company in return for shares and the new company should then have bought the business.
“But what’s the difference,” he said ”either way I end up owning the shares in the new company and the new company ends up operating the business?”
The difference is that one way you comply with the rules and the other way you don’t.
Ending up in the right place is not enough: you have to get there by the right route. It is as simple as that.
He was not unique in finding himself wrong-footed by the UK’s incredibly complex tax laws.
I have seen other people suffer similar frustration, like the company that made a substantial payment into its pension scheme the day after the end of its accounting year.
The accounts showed the amount as a creditor, but unfortunately the tax rules say that in the case of a pension payment, it actually has to be paid in the year to qualify for relief in that year.
Pretty much any other kind of payment would have attracted tax relief in the year it related to and not in the later year of payment.
As long as, in the case of a bonus, it was paid within nine months of the year end that is.
Tax rules cut both ways though and HMRC can sometimes find the way they operate equally galling.
The moral is, don’t look for logic in tax and always take expert advice before you act if significant sums are involved. The way you do what you do can really matter.
PAUL Aplin OBE is a tax partner with A C Mole & Sons and chairman of the Technical Committee of the Institute of Chartered Accountants in England & Wales Tax Faculty. He and Taunton based tax partner Amanda Gunter can be contacted on 01823-624450, Bridgwater based tax partner Paul Kingdom can be contacted on 01278-446088.