Author Archives: lee blackshaw

Why do we have to pay tax? Are we overtaxed?

These questions always seem to arrive as a pair.

Paying tax

The requirement to pay income tax (if we focus on just one tax) is a combination of Income Tax Act 2007, section 4 and (for this year) Finance Act 2022, section 1.

HMRC are given their collection and management powers under Taxes Management Act 1970, section 1.

Links to the legislation are here:


You may think so. Even if you are taxed less than the equivalent incomes in many other countries.

Here is an excellent blog by Dan Neidle on this topic:

Scope of the UK trusts register widened

The trusts register first applied to UK trusts with a tax liability. This was widened in October 2020 by anti-money laundring regulations to include most other UK trusts created by individuals during lifetime or on death.

There is a list of trusts exempt from reporting, such as charities, pensions, co-ownership of land and some older very small trusts.

For others the reporting deadline is 1 September 2022 for existing trusts and 90 days for trusts created after that date.

Information gathering for old and fairly dormant trusts may take some time, so the process is best started as soon as possible. The data requirements include details of the settlor, trustees, main beneficiaries and initial trust assets.

For non-UK trusts, with no UK resident trustee, the requirement to register only applies when the trust has a UK tax liability or acquires UK land.

Once registered annual updates are required.

We can help you complete and update the trust register for a fixed fee.

What might change on inheritance tax?

Inheritance tax is often misunderstood1 and causes fear in many more than the 5% of estates which currently pay it.

What might change? The Office of Tax Simplification and an All Party Parliamentary Group have made suggestions. Here are some possible changes, based on those and my own thoughts:

The rate: A reduction from 40% to 20% (if your IHT plan is to spend your money, that is the most fun way to do so – and you’ll probably suffer 20% VAT on most items. So a similar 20% tax on not spending has some logic.)

Exemptions and zero rates With a lowered rate, widening the base of those who pay may make sense, if the overall rate can be made acceptable. Removal of the capital gains tax free uplift on death where no IHT is payable – but deferral of the tax on those death gains until the asset is sold by the recipient.

Reliefs A cap on relief for business and farming assets, to perhaps £1m per person (currently unlimited) and the spreading of the tax payable over 10 or 20 years, to prevent the need to sell the business or farm just to pay the tax. Removal of relief for AIM shares.

Gifts Reducing and simplifying the seven year gift period, removing minor multiple exemptions to one simple amount and reduced record keeping. A lower rate of tax (10%) on gifts.

Trusts Recognition that these can be part of a sensible plan to encourage gifts while protecting the gifted assets from being used unwisely by young beneficiaries. Simplification of the taxes on trusts.

What planning should take place now?

  • Consider making gifts now
  • Review assets qualifying for relief and consider trusts
  • Review and update your will
  • Consider life insurance level (often the easiest way to plan for IHT)

1 see

Crypto taxes

I love technology but find crypto currencies and assets duller than football*. But it exists, and is taxed, so we need to know how and when.

A myth has built up that it somehow escapes tax or that HMRC cannot understand it.

At the time of writing (April 2021) many keen investors are showing enviable crypto gains. So perhaps we’ll see lots of selling at a profit (before the greater fool theory comes into play and we look at loss relief for those to who buy now?).

The latest HMRC manual update gives a good and fair summary of the position

Any HMRC guidance comes with the warning that it may not reflect the legislation and parts are hidden (eg But the guidance is useful and demonstrates where you may face tax and penalty risks if you take a different view. Useful sections are:

Capital gains tax disposals

Record keeping

Why it isn’t tax free gambling

A final thought: what if you don’t sell? Are you sure that the beneficiaries of your will can access the funds on your death, with correct passwords and two level authentication?

*To be fair to football fans I also like cycling but find the cycle to work tax rules equally dull

Taxing compensation payments

A fairly common question is “If you win a compensation claim, is it taxable?” The answer is “well, it depends”.

Over 73 paragraphs in Wilkinson the Judge explains that interest rate swap compensation for a property business is taxable as income. Paragraphs 24, 31 and 48(1) explain why. A key point is: what is the compensation replacing (eg business profit) and how would that have been taxed?

In paragraph 39 the Judge notes that the tax position can be described as “simple”, even though the taxpayer arguments are quite complex. Perhaps it is simple, and after victory against a big bank (rightly so) the taxpayer (now wrongly) feels they are on a winning streak and can beat HMRC by having the compensation tax free.

The case is similar to the HMRC victory in Gadhavi which is also an unbinding First Tier Tribunal case. Repeated cases may be a hint that one will head to the higher courts for a binding view, although both cases seem correctly decided.

Not all compensation is taxable. Some is exempt as a matter of policy (TCGA 1992, s51) or may be subject to relief, if used to restore the asset (TCGA 1992, s23) and some is subject to capital gains tax (based on the right to make the claim – but often effectively exempt under ESC D33).

Tax rules may differ for the actual compensation sum and interest paid on that amount.

Compensation offers should be checked, to see what is included, how it is described and any tax treatment noted in the offer. Note that there is a difference between tax formally deducted and the tax treatment taken into account under the Gourley principle but not an actual tax credit.

Tax advice, detailed and in writing, should be taken at the time of the offer and, despite the Judge’s comment in Wilkinson the analysis may not be simple. If there is any doubt the “white space” disclosure in a self-assessment tax return may provide an opportunity to provide protection from penalty risk should HMRC disagree.

Personal limited company financial risks highlighted by Covid19

Government financial help in response to Covid19 was implemented quickly, is generous and will save jobs and businesses. It is right that the state stepped in at a time of national emergency.

Covid19 highlighted many financial risk areas for personal limited companies. Most of these also arise even in “normal” times. Although the risks are well known and common financial errors, it is worth repeating these now, for future risk management.

Some key risks are:

  1. Lack of personal savings for emergencies and company cash reserves for emergency cashflow
  2. Not fully understanding that the company is a separate legal entity to the owner (and that you are “self-employed” only in the loose sense of the term)
  3. Failing to send tax returns and pay taxes on time
  4. When saving tax and NIC by the use of low salary, dividends, company retained funds, alphabet shares or the ability to time profit extraction, not being honest about it (eg when demanding help* from the Government)
  5. Following your accountant’s advice on tax saving, but not on financial management
  6. If you would have defended your “dividends are dividends, not salary” to the death with HMRC, don’t immediate flip to equating it with earnings or self-employed profits, when that becomes more convenient
  7. If your company is paying dividends, do it properly (and check that you are doing it properly, before HMRC check)
  8. If you claim to be “paid in dividends” prepare for a battle with HMRC
  9. In reality, being a disguised employee of one large company
  10. Thinking salary must be a fixed monthly amount
  11. Thinking “every business owner does it that way” – they don’t
  12. Running a business, so that it is reliant on each month’s income to pay each month’s outgoings, with no safety net
  13. Seeking the cheapest advice, internet free advice or the lowest tax rate
  14. Lack of insurance and protection (life cover, critical illness and income protection, self-insurance via savings, pension contributions, shareholders’ agreement, a will and lasting power of attorney)
  15. Lack of “what if”, crisis planning and a business plan
  16. Not understanding that every time you do something to save tax (or NIC), it could open up a potential known (or unknown) future problem – especially where tax is driving the structure or plan, instead of the commercial and practical reasons

Several of these are not self-inflicted errors. Some employers attempt to save NIC and other employee costs, by forcing employees into freelance personal service companies. Some accountants push tax savings and “solutions” before financial guidance. Many IFAs charging structures are confusing and opaque.

But, running your own business is more fun, flexible and rewarding than being an employee. By not falling into the above traps, and barring pandemics, you also should have a sound financial future in running your limited company.

*I think there should be some Government help here – but it’s complex, as the underlying company income should form part of the calculation (due to the lack of transparent taxable profits, compared to a sole trader/partner). Honesty around the tax and NIC saved would also help formulate an argument for reasonable financial help.

Coronavirus Job Retention Scheme – “just a little bit of work” risk?

Those with furloughed employees will have made claims from the Government under the Coronavirus Job Retention Scheme (“CJRS”). In doing so, they have ticked a declaration that it is correct and done in accordance with HMRC’s guidance.

CJRS has been implemented quickly, is generous and will save jobs and businesses. Employees will receive some pay and employers will receive state benefits to fund that pay. What might go wrong?

No work

Para 6.1(a) of the Treasury Direction says “An employee is a furloughed employee if…
the employee has been instructed by the employer to cease all work in relation to their employment”

HMRC’s guide says “The employee cannot do any work for the employer that has furloughed them.”

There is a relaxation of this for furloughed directors, due to their statutory duties, but not for staff.

Just a little bit of work?

If we ignore those who purposely abuse the scheme, are there some employers mistakenly not meeting the CJRS requirements? If so, are they exposed to refunding the furlough payments, penalties or even criminal charges (eg Fraud Act 2006 or Theft Act 1968)? Additionally, there may be consequences under the Criminal Finances Act 2017, for others who may have assisted in making the claim.

Are some taking the view that “just a little bit of work” is fine, “how will HMRC find out” or “surely HMRC are not going to attack a struggling business and put employees’ jobs at risk”?

HMRC will check

My general outlook to reduce risk is to assume HMRC know everything that you know, plus a little bit more!

But, more specifically, are there email trails, mobile phone records, social media posts, disgruntled employees, suppliers notes and third party evidence that will show that an employee has done some work? What if HMRC interviewed staff or customers? What if your accountant notices it and insists that you correct and reduce the claim?

Even if the risk of penalties and prosecution is thought to be low, would bad publicity affect the business? Would there be public sympathy or not? It is easy to see, in say 2023, political pressure to be seen to have policed the scheme robustly, including carrying out at least some prosecutions.

Casual risk messages

I have seen or heard phrases along the lines of “I’m furloughed at the moment but I’m just doing…XYZ”. If I hear such open public statements, fortunately not from any clients (yet!), it will be easy for HMRC to also see and hear these, to trigger or assist in an enquiry into CJRS.

Managing CJRS risk – a few tips

  1. Review the furlough letter agreed by the employee – does it state that no work is to be done?
  2. Is there an audit trail to show that no work is done?
  3. Does the employer and employee know that “no work” = no work?
  4. Is an “out of office” set and furloughed employee email accessed by, or diverted to, non-furoughed staff?*
  5. Is it clear that client or supplier enquiries to the employee are diverted to non-furloughed staff?
  6. Even if funds are tight, discuss the CJRS process and application with a specialist with knowledge of HMRC tax investigations (in writing this, I’ve spoken to Jon Preshaw, who can be contacted here and I also thank him for his very useful input).

*HMRC confirmed (although only by the webchat function) that a furloughed employee checking email, to forward on to an unfurloughed employee to action is fine, as long as it is not worked on by the furloughed employee. [items in green updated 30 April 2020]

Update June 2020: the draft legislation pushes known errors, not reported with 30** days, into the deliberate and concealed penalty category. This could result in a 100% penalty, in addition to the refund of CJRS support. For larger amounts, this could also trigger the “naming and shaming” rules. The ATT response to the draft legislation consultation is worth a read.

**Update July 2020: the 30 day rule has been extended to 90 days but the other provisions still apply (see clause 106 and sch 16 of the Finance Bill, which should receive Royal Assent in July).

5 April 2020 year end tax planning – in three minutes

A quick checklist before 5 April (and before the 11 March Budget, where lots of things may change!)

  1. Maximise ISA savings
  2. Review pension contributions
  3. Consider pension tax breaks for your children (even minors)?
  4. Use your capital gains tax allowance
  5. Use your £2k dividend 0% tax band
  6. 30% income tax relief, using EIS/VCT investments?
  7. Review and note gift aid tax relief
  8. Pay any outstanding 31 January 2020 tax before the end of February, to avoid a penalty
  9. Check your PAYE coding notice and benefits package
  10. Will your tax on rental income rise, due to the interest restrictions?
  11. Use personal allowances of spouse, children and grandchildren
  12. Are you paying high marginal rates of tax?
  13. Business – extract cash in a tax efficient way (salary, loan, dividend, rent, pension?)
  14. Trusts – create new ones; distributions from existing ones; close down old ones; do you need to complete the trusts register and keep sufficient records?
  15. Inheritance tax – gifts, update will or letter of wishes, create lasting power of attorney
  16. Get a fixed fee quote for your 2020 tax return
  17. Are you a Scottish or Welsh taxpayer?
  18. Are any overseas assets or income taxed correctly in the UK and overseas?
  19. Have you set up your online personal tax account with HMRC?
  20. Do you have a tax payment on account to make on 31 July 2020?

These are prompts rather than fine detail – for further information please contact me.

Tax tips

Here are my top ten tax tips:

  1. Have your tax return completed and submitted to HMRC as soon as possible after 5 April (ideally by 31 August);
  2. If you have substantial dividend income, or are self-employed, budget for your tax payment monthly;
  3. If your non-PAYE income is significant, understand the payments on account system as soon as possible (;
  4. Pensions tax relief and ISA allowances are very generous – save as much as you can as early as you can, to maximise the tax breaks;
  5. Before you worry about inheritance tax, make sure you and your family have wills, powers of attorney and adequate life insurance (and even after that, don’t worry about it too much);
  6. Don’t introduce tax risk into your finances (;
  7. If you buy a foreign holiday home (or even a helicopter or jet), at some point you will regret doing so (and, if you must buy one, don’t put a complex and costly structure around it that may work today but not tomorrow);
  8. If a slightly artifical structure (eg using a company for assets, paying yourself in dividends or loans) saves you tax today don’t assume that it will do so in a few years’ time (and don’t assume that it will be easy, in practical or tax terms, to collapse);
  9. Take advice before you do something – if the “something” is overseas, take foreign tax and legal advice first;
  10. If you run a business, remember that VAT and PAYE are not your money – don’t “borrow” or spend the taxes – instead keep an eye on your own business net cashflows.