Today, the pubs in England – or at least their gardens – have reopened after months of Coronavirus lockdown. Great news – and I, for one, cannot wait for my first pint. However, a word of warning: the pub has long been a breeding ground of salacious tax gossip.
Picture the scene. Four men are sat around a pub picnic table drinking frothy pints of ale. After discussing the latest football results, they quickly move onto how their respective businesses coped in the last year.
“I have done great during lockdown,” says Freddie, a local self-employed cleaner. “I got all the government grants, but my work did not dry up. In fact, what with COVID, people wanted more cleaning, so my profits went up! I have never been busier. But it was so easy to claim the grant, I just went online, clicked a few buttons and had the cash in no time. HMRC were giving it away.”
Oh dear, Freddie. The SEISS grants, which he is referring to, were only for businesses adversely impacted by Coronavirus. He should have read this article to understand the rules and how they have become stricter in the latest iterations of the grant. Unfortunately, Freddie could expect a repayment demand from HMRC when he files the tax returns that show his profits have increased.
“Well, I used the downtime to build a home studio,” says Brian, a local musician. “It’s great. I use it to make my music, but it has a bar too. I even had a pool table delivered. You guys should come over soon. And the best thing – it’s all tax deductible. I even get all the VAT back!”
Oh dear, Brian. Firstly, I hope he had the proper planning permission. Regarding the taxes, if there is a personal use then the claims should be adjusted accordingly. Furthermore, building and structures are largely limited in the amounts of tax relief you can receive up-front. With VAT it can get even more complicated. And you might have impacted the capital gains tax status of your home.
“Who wants another beer?” Asks Roger, who runs a management consultancy business. “I’ll get them as I can put them through the company. Just say its travel and subsistence and HMRC allows it all. I do it with all the meetings I have – clients, suppliers… the in-laws.”
Oh dear, Roger. He is playing a very dangerous game here. Business travel and subsistence is fine. Say Roger had to get a train to Manchester to meet a client and stayed overnight, his hotel costs and meals would be deductible. Unless he treated the clients to dinner as part of the schmoozing required – that meal would be business entertaining. There is nothing wrong with putting genuine entertainment expenses through the business accounts, but the correct treatment is for it to be added back for tax purposes. There is no tax relief. As for putting personal costs of buying drinks for your friends or family down as subsistence – that is just plain wrong. The correct treatment would be to show as a loan from the company, which, uncorrected, would lead to a whole host of tax headaches. Also, HMRC penalties for late taxes are higher where the behaviour is deliberate.
“Claiming beers? That is nothing,” says John, a used car salesman. “I put our family holiday to Italy through the business a few years ago. I arranged one ‘business meeting’ with some Ferrari dealer. I had no intention of doing any business with him and cancelled the meeting as soon as I landed. Still, I claimed the lot.”
Oh dear, John. That is tax fraud. There is no defence here.
If you did go on a business trip to somewhere exotic, there would be no harm in enjoying yourself as long as it is incidental to the business purposes. Say you are a model. You might have some clients in New York – one books you on the Friday for a shoot, the other on the following Monday. It would be unreasonable to fly back to the UK between those jobs so HMRC would understand you staying in New York over the weekend. You cannot claim for the personal costs – such as entry to the Empire State while you pass the time – but the fact you did personal stuff while there would not jeopardise the deductions for hotel and flights as long as the sole intention of the trip was for work.
These are just some random examples, but it is something most accountants or tax advisors will experience. A client calling or emailing and starting with “My mate told me…”
Unfortunately, HMRC operate a self-assessment system with filing tax returns. They can only check so many returns before it is inefficient. This means that there will many misinformed (or deceitful) taxpayers putting through incorrect expense claims and getting away with it. Just because HMRC does not inspect your return does not mean it is correct. And where it is deliberate behaviour, HMRC can go back 20 years to collect the taxes you have underpaid.
The frightening thing is some of these taxpayers are represented by tax advisors. Again, whether these advisors are deliberately misguiding or simply out-of-date and ignorant of the latest rules is not clear, but I have seen some terrible results for the taxpayer. It really is not worth the risks.
And idle tax chat is not just confined to the pub. I was directed to a passage in Caitlin Moran’s book where she discussed taxes. I quote:
“When I finally became well-off enough both to need and afford an accountant, I was astonished at the things I was allowed to claim, because of my ‘media’ career: clothes, for television; accountants (of course); magazines; first class travel; hotels; taking clients to lunch; golfing lessons. All of these have been argued as necessary to the continuation of people’s careers.”
Caitlin Moran
There are a few issues with this, some I have already alluded to. I should say, I have no idea if this is from her current accountant and I would not want to assume this is the advice they gave – you tell a client one thing and they hear another. But of course, a reputable columnist and writer says this and next thing you know everyone is trying to claim golfing lessons. The only time I see that being allowable is if you are a professional golfer or perhaps if you were playing a golfer in an upcoming film. The only time I can see Caitlin being able to claim golfing lessons as a business expenses would be if she decided that her next article would be about what it was like to go to a golfing lesson.
The moral of the story – do not believe everything you read or hear from someone who is unqualified to give tax advice. Especially so if there are alcoholic drinks involved. But otherwise enjoy the pub – fingers crossed it does not rain.
These are general examples and not formal advice. Also, tax law is constantly changing, so the issues discussed here might now be out of date. Each taxpayer is different; therefore, we recommend that you consider your options carefully with an expert before taking any actions.
If you want to discuss any of the above, or any other matter, just give us a call on 020 7183 3383 or email info@kma-spotlight.com.
