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April 12th

April 12, 2018

Your starter for ten today: whose diary is this?

 

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Tax for creatives

April 8, 2018

At Follycon, the British Science Fiction convention (Eastercon) held at Harrogate over the Easter weekend, I was one of the panel in a session discussing business for creatives. Our brief was to look at finance, publicity, marketing and branding for writers, artists and other creative workers when they start to make money and have to think of themselves as a business, for example when they get their first sale.

It transpired that the people present were keen to hear about taxes  and I said I would expand a little on my breathless summary of “three rules, two numbers and a concept”.

Three rules: rule one – pay your taxes. As Oliver Wendell Holmes may have said, tax is the price we pay for civilisation, and I’d rather live in civilisation, thanks.

Rule two – don’t take the piss. Much of the tax avoidance industry would disappear if this simple rule were more widely followed. For a creative start up, I’d suggest you don’t spend your time trying to argue you *really* started in business when you started thinking about unicorns in 1982 so you should be able to subtract your cinema tickets for the entire Star Wars and Marvel series from the £250 advance for your fantasy novel… It annoys HMRC and makes you look like a smart arse, and nobody loves a smart arse.

Rule three – don’t let HMRC take the piss either. Know your rights and demand them. Remember the VAT MOSS fiasco and don’t assume you can’t make a difference. And don’t agree to let the state have your voiceprint on file!

Next: two numbers to remember. The first is £1000, which is the amount you can earn under the new rules on tax free allowances for property and trading income. So if you are on PAYE and don’t have to make a self-assessment return already, you don’t have to panic about tax when you sign the contract for your first novel or sell your first illustration. Provided the advance is less than £1000 you don’t have to pay tax on it. If it is more than £1000 you can choose, instead of claiming every piece of paper and trip to Eastercon against it, to claim a flat-rate £1000 instead. Yep. If your advance is £1005 you can pay tax on the £5 – although be aware that this is a new piece of legislation, that’s just my interpretation of it, and HMRC haven’t produced particularly good guidance on it yet. If you are already on self-assessment for some other reason you don’t seem to get this option, for example. And – see Rule Two – you can’t decide you have thirty seven different income streams (selling books with red covers, selling books with blue covers…) and hope they’re all exempt. The £1000 is a global total, so it includes your book advance AND your side business of dog walking AND the £300 your cousin paid you for typing their thesis.

The second number is, of course, £85,000 which is the point at which you have to start paying VAT. In general, if you suddenly start getting paid at that sort of rate I’d advise you to see an accountant anyway, but the reason the VAT limit is going to become increasingly important over the next few years is this thing called MTD – Making Tax Digital. HMRC has this theory that we’re all stashing cash down the back of our sofas and that if we all had to keep our records tidily on computers and share them with HMRC four times a year we’d stop doing it and they’d get more tax.  What would actually happen, of course, is that we’d carry on being careful to declare our turnover – because, see Rule One and Rule Two – but we’d all be much more fly about our expenses, and that fifty quid train fare that you couldn’t remember whether it was business or personal would be much more meticulously recorded so profits might, perversely, go DOWN.

If your turnover is less than £85k you can, at the moment, keep your records how you like. MTD cuts in at the VAT threshold – and, be warned, HMRC are taking “evidence” of whether the VAT threshold ought to come down. Watch this space.

Finally, a concept: “wholly and exclusively”. You can deduct expenses which are “wholly and exclusively” for business purposes from your business turnover to arrive at your business profit. This is a big conceptual leap from PAYE taxes, where you can only deduct expenses which are “wholly exclusively and necessarily” incurred in the performance of the duties – a much more restrictive concept.

So – I asked the audience – why are you at Eastercon? Wholly and exclusively for business purposes – to make contacts, to find an agent, publisher etc, to connect with your fans, to increase your professional reputation, to sell books or other creative work? Then the cost of the convention itself and the travel to and from it would be allowable expenses, incurred wholly and exclusively for business purposes. The fact that you might enjoy the convention doesn’t make it disallowable in and of itself: the test is why you came. The fact that you might not have found an agent/publisher/fan base at the con also doesn’t make the expense disallowable – you don’t have to be successful to have an allowable business expense.

What you DO have to have is a wholly business expense. Can you claim the cost of food and drink at the con?

That was when I referred people to the tax case of Mallalieu v Drummond. A barrister had to wear specific colours of clothes in court but wasn’t allowed to claim a deduction for them: you have to wear clothes anyway, so they weren’t “wholly and exclusively” for business purposes. We talked about the need to eat and drink anyway, and whether it would be reasonable to claim the extra cost of eating at the con. With strict adherence to Rule Two, you should be fine.

 

Creatives, if you have a question, feel free to post it in comments or ask it on #taxtwitter.  Tax mavens, if you’ve spotted anything I’ve forgotten or would like to add any other rules, numbers or precepts, please join in!

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Simplification at last

April 1, 2018

Well there we have it. The actual rate will be confirmed in the Budget this autumn, but I am proud to announce that the government have accepted my suggestion for the most radical simplification of the tax system in forty years: the Single Tax Rate is go!

The Single Tax Rate works like this: everything gets taxed at the same rate.

That’s it.

I mean, why should individuals be taxed at 20, 40 and 45 per cent, corporations at 19 and  trusts at wacky rates of 7.5, 20, 38.1 and 45 per cent? Why is VAT 20%, the sugar tax 18 or 24p per litre and the plastic bag tax 5p? Landfill tax is £86.10 or £2.70 a tonne but Petroleum Revenue Tax is zero – but it’s not abolished in case anyone fancies claiming back losses… Make it simple, stupid!

From now on, everything gets taxed at one rate. Income tax and corporation tax? Same. No advantage or disadvantage to carrying on your business in one way or another. VAT? Same rate. Environmental and behavioural taxes? Same rate. Imagine the Budgets of the future! The Chancellor will be able to stand up and say “from next April, the tax rate will be 20%” and everyone will know where they stand, how much they have to pay, and how to calculate it.

I mean, I admit, when I suggested the idea, I had expected the Chancellor would stick with 20% as a nice, easy, round number that everyone can calculate on their fingers. But, hey, it’s a start. I’m sure we’ll all get used to calculating 42.1984% of things in no time.

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Closing the walk-in centre

January 31, 2018

Now that I have finished my tax return (about which I will no doubt be writing more later) I have turned my attention to the consultation on “Making Urgent Care Work Better in Sheffield” which, coincidentally, also closes today.

As this is outside of my usual remit of tax consultations I have posted my response under a cut but click here if you’d like to read it nevertheless. Read the rest of this entry »

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Is it just me?

January 23, 2018

I occasionally post on these pages in January about the agonies of preparing my own tax return. As a retired tax inspector, I often wonder whether I am less or more compliant than the average taxpayer, on the same spectrum as the dentist’s own teeth being a mess and the builder’s house having falling roof tiles. But with the writing and teaching I do I am, frankly, an extremely small business so I also wonder whether I have the same characteristics as other extremely small businesses.

For example: what were you doing eighteen months ago? I am looking at a payment statement from the spring of 2016 which will of course fall into my 16/17 accounts which will be included in the return I will have completed in, gulp, eight days. It is for a few hundred pounds and I had, frankly, forgotten doing the work at all until I found the statement helpfully placed in the right month in my account book. (Yes, I keep my records on paper.)

Now that I remember the gig I also remember that it was a one-off, where they also paid for my hotel and train fare. It doesn’t say on the statement whether this is payment for the work itself, or includes the reimbursement for the train fare. I vaguely remember they reimbursed the hotel directly so I don’t need to worry about that, but do I need to include the train fare in my accounts or not?

If they paid for the work and reimbursed me for the train fare in one cheque, then I need to include the cost of the train fare in my accounts expenses. If they paid for the train fare on a different date or by cash or in some other way, well, the fare and the repayment cancel each other out and I don’t need to include anything in my accounts (or, to be picky, I need to include both).

What I’m actually going to do, of course, is stick the amount of the cheque in my accounts as takings and forget about the train fare, on the grounds that you never mess with the Revenue by under declaring your takings, but that a train fare I might or might not have paid eighteen months ago is neither here nor there.

Of course, if the fabled free software for MTD existed, I would move to keeping my records electronically. I did accept a free trial of some software and found it remarkably easy to have invoices that generated and numbered themselves and added themselves up. However at the end of the free trial the monthly subscription was more than my average monthly turnover so I had to decline.

In short, if there was free software I would use it. If there was free software I would know whether the payment I received was net or gross and my accounts would be that much more accurate. This is why I believe MTD is a customer service initiative and not a money-making device: it’s expenses that I fail to record, not takings. Is it just me?

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It’s that time again

January 19, 2018

Sigh. I’ve tried once already to sign into my HMRC account to make sure I can get my tax return in on time. Today I managed to get through and see the front page, where it tells me I have an overdue payment of £0.80. WTF? So I tried clicking on it, around it, near it, everywhere else on the page, to see if there was any explanation of what the alleged payment is for and why it might be overdue. Nothing, nada, nowt. So I go to the help page, looking for the contact number, thinking it might be a quick phone call.

No contact number.

Nope, apparently now I have to select what the problem is and watch a bloody video telling me I’m too stupid to live (I haven’t actually watched the videos but I imagine that’s the tone, amiright?)

No. Sorry, it’s eighty pence. If you want it, tell me why you think I owe it to you. But don’t expect me to research how your system works before you’ll deign to speak to me.

Poor show, HMRC. You hassle me for petty amounts, you deal with the questions that arise. Otherwise you could just charge everybody a random amount of pence and collect 30 or 40 million quid extra, relying on it being too vexatious to question.

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Plough Monday

January 8, 2018

It’s Plough Monday, the start of the new working year (the first Monday after Twelfth Night and Epiphany).  So here’s a nice piece of intellectual work for you, a research question: how much does it cost to pass a piece of legislation?

No, not the cost of administering the law after it has passed or preparing it before it is presented to Parliament.  How much does it cost to print and promulgate a Bill, to give it a First Reading, to discuss it in the House of Commons, to call a vote, to discuss it in the House of Lords… how much does the parliamentary process cost, and then how much does it cost to, what, courier it over to the Queen for her to sign? (How does that part actually work?)

What I am getting at is, this is a fixed cost which doesn’t seem to me to have been factored into the impact assessment process.

An impact assessment – for tax, a TIIN – should tell you how much a piece of legislation will raise in taxes or cost in tax foregone, and how much administrative burden it will impose or relieve for those it impacts, and how much it will cost or save the administering department.

What it won’t tell you is that base cost of passing the legislation in the first place.

Why should we care?

Well, there are several measures in the latest OOTLAR where the TIIN shows no cost or benefit to the general population, the taxpayer or the department, and that the impact is on only a handful of businesses.

For example, Income Tax: Venture Capital Schemes: relevant investments (page 69 of OOTLAR) says it will affect “a maximum of 100 individual investors”  and “fewer than five companies have been affected by the provisions since November 2015”.

I understand that, following the Wilkinson case, there was a change in HMRC and the Treasury’s approach to extra-statutory concessions, so that a number of useful but trivial exceptions from strict application of tax law have either been lost or have been legislated.

It seems to me, though, that HMRC ought to have a base figure for the cost of the legislative process (divide the annual cost of running the Houses of Parliament by the average number of days it takes to pass a piece of legislation, say?) and a clear power to set and promulgate extra statutory concessions where certain rules are met.

What kind of rules?  What about the total costs and benefits of the change are smaller than the cost of passing a piece of legislation?  Perhaps an overall limit of one (two? five?) ESCs a year so that they don’t become an easy way out of messing up your drafting in the first place?  Perhaps a “one in/one out” rule so that they don’t become another overcomplicating factor (three pages of tax legislation accompanied by a thousand pages of ESCs is an undesirable an outcome as a thousand and three pages of tax legislation, after all).  Perhaps an “affects no more than x number of people/businesses, impacts of no more than y cost on any one business” rule?

But in any event: more options appraisal, less legislation, more ESCs.

What do we think?