Ian McMonagle: Where tax is concerned, dependency is everything
Ian McMonagle, a Chartered Tax Adviser who sits on the Scottish Committee of the Chartered Institute of Taxation, and taxation director at Russell & Russell, business advisers, details the intricacies of the tax system and why most conversations start with ‘it depends’.
Whenever anyone asks me a question about any aspect of tax a standing joke is that the first words of my reply are, “It depends”.
Tax, in general, is a hugely complex, constantly evolving, subject, and full of “ifs” and “buts”, “ands” and “maybes”. It really does depend on the particular circumstances of the situation.
In every instance, too, you need to consider each of the various aspects and different angles to the subject matter and how it may affect a number of taxes. For example, what is good for Inheritance Tax planning – to mitigate potential tax in the future - often triggers a Capital Gains Tax charge now. Salary payments are tax-deductible, dividends are not. The list is long.
It is also an ever-changing world and all good tax advisers need to keep abreast of developments in changes to legislation, whether in the annual Finance Act or by secondary legislation which can be passed without parliamentary approval and little notice.
Each time there is an amendment to the tax rules or rates, the date of change becomes highly relevant and has to be considered every time.
Regular decisions in the courts and tax tribunals can set new legal precedents. Take for example the recent court case won by a taxpayer who argued that blinds fitted in new-build properties should be zero rated for VAT (thus allowing a recovery of input tax) as part of the construction costs and not VAT-exempt, as they had been previously, and as a result, no recovery of VAT was allowed.
The decision by the court changed the VAT treatment for the supply and installation of blinds, but only in new build properties. The decision for VAT recovery was backdated to 5 October 2020.
The recovery of VAT now depends on whether the blinds are installed as part of the construction of the property and whether it was on or after 5 October 2020 and, additionally, whether the blinds are manual or mechanical. A classic example of “it depends”.
Another common example is the tax implications of electric cars used in a business. There are so many permutations affecting the tax outcomes:
Does the business own or lease the car or is it provided by the employee?
Are the charging points installed at the driver’s house or at the business premises?
Who pays for the electricity, and can VAT be recovered?
And, if so, should it be at 5% or 20%?’
Well, the answer to each of these questions, as you might have already guessed, is “it depends”.
It is always best to seek qualified professional advice in advance. Not doing so could have major tax and legal consequences.
Taxpayers are usually afforded protection from HMRC penalties where, having acted on sound professional advice, HMRC later takes a differing view on the tax treatment adopted.
If, however, if you have relied on advice from “a friend” in the pub or at your golf club, it could be costly.
It would be wise, therefore, always to ask, in advance, about the tax consequences of anything being considered.
The answer will invariably start “It depends”.