Is this really on....

Is this really on....

Didn't find your answer?

Had a meeting today with a potential new client who runs a small company (design agency) turns over some £50k and makes £30k profit after expenses and small salary for himself.

He doesn't take any dividends but has left all reserves in the pot, currently over £100k in the bank.

As the salary is his only income he is claiming full CTC, full WTC and gets 80% housing benefit meaning he is netting some £20k+pa in benefits.

He is doing rather well at whta can only be considered the taxpayers expense.

He has company mobile phone, claims (legitimate) mileage and other expenses from the company and so all in is laughing!

Makes me sick, even if what he is doing is allowed. I was narked and on returning to my office quoted him in writing a fee that was double what I would have charged (£2k instead of £1k for a/cs, TR, CT600 etc) for a relatively clean set of books.

Part of me hopes he says I am too expensive ............

Replies (72)

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By HeavyMetalMike
22nd Mar 2011 21:36

Housing benefit??

How can he claim housing benefit if he is working?

A few months ago someone asked a similar question about a 40% taxpayer going limited and then drawing down their DLA so as to minimise personal income and then TC etc. Many on this forum said that was atrocious and quoted anti-avoidance legn for tax credits, though it seemed pretty obvious and legal tax planning.

Surely the answer is to just scrap all WTC and CTC? Most of it goes to support second cars and second holidays which most seem to accept as a bare necessity to the taxpayer should pay them?!

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By cymraeg_draig
22nd Mar 2011 23:08

Fraud

If he is the sole owner of the company, then he is deliberately failing to disclose his wealth. The fact is he has the additional £30k income - he simply chooses not to draw it - which is his problem.

My opinion - he's a benefit cheat and should lose every penny he has secreted in the business. I think you need to have a chat with HMRC as the £100k is "savings" which he has chosen to hide by leaving it in the company.

 

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By nogammonsinanundoubledgame
23rd Mar 2011 05:16

Don't know squat about housing benefit, but ...

(1) To claim WTC he needs to be in qualifying remunerative work.  That requires a contract of employment that is subject to NMW.  If he is doing the usual director-fees-exempt-from-NIC/NMW route he may only be entitled to CTC.

(2) He needs to check out the "notional income" regulations.

With kind regards

Clint Westwood

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By CathyB
23rd Mar 2011 09:29

Tax credit claims

Check out here re "deliberately depriving yourself of income in order to claim tax credits".

http://www.litrg.org.uk/low-income-workers/tax-credits/tax-credits-advisers/what-is-income

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By valentino rossi
23rd Mar 2011 10:49

The problem is that it is not policed

The problem with tax credits is the general public are expected to make the claims without any real knowledge of how the system works.

In particular you have these types of situations where a person is doing something they believe is legitimate and are receiving significant credits in error. Indeed even some accountants are advising the very treatment being described.

The whole system has gone to pot and it probably needs to be scrapped but I doubt that will happen because too many lower income families will be significantly out of pocket.

Other common areas of misclaiming are stating you are a single parent so as to avoid including the income of the partner in the tax credits calculation or claiming relief for rental losses against employment income.

At the same time if everyone else is doing it why shouldn't you as well. 

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By Ernest N Dever
23rd Mar 2011 10:55

Ah yes...

"The problem is that it is not policed"

But I think he's fraudulently claiming the tax credits at least because their are, as has been noted, specific rules dealing with deeming income to be there even if it hasn't been drawn from the company.

I'd say that Mr Dong has an obligation to file a Money Laundering report.

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By mattgriffiths
23rd Mar 2011 10:59

Benefit Fraud

Why not call the Benefit Fraud Hotline: http://campaigns.dwp.gov.uk/campaigns/benefit-thieves/ and let them deal with it? I also agree that a MLR should be filed.

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By frustratedwithhmrc
23rd Mar 2011 11:05

Surely the difference between avoidance and evasion

The point about someone claiming they are living on their own instead of the reality, living with a partner is evasion pure and simple.

However, where the company, which is an independent legal entity earns money and the owner of that legal entity draws down sufficient income to live on (say effectively NMW level) and because of the level of actual earnings he/she receives substantial tax credits, under what terms is this actually tax evasion?

Yes, the company continues to accrue profits which could be paid to the shareholder, but aren't. As long as corporation tax is paid on these profits, there is no fundamental reason why this shouldn't be retained as capital within the company.

Don't get me wrong. I despise tax credits in principle as I despise all forms of state oriented redistribution and I certainly wouldn't advise any client of mine to do this, but on what actual statutory basis is this evasion, tax credit fraud or whatever?

Certainly I don't see it as deliberate under-declaration of income or deliberate deprivation as until they are paid to the Shareholder / Director / Employee in the form of DLA Credits, Dividends, Salary this money belongs to the company.

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By Guest1
23rd Mar 2011 11:14

I'm in

"frustratedwithHMRC's" corner on this one. Further, "DingDong" has mentioned, in the opening post that this is a potential new client. Are some suggesting that we are now expected to "police", via MLR, potential new client's as well as the one's we act for?

For accountants MLR was always going to be farcical but, if my thoughts above are true, heaven help us all.

This topic simply sums up the reality, or lack of it, which surrounds our overweight tax system

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By Roland195
23rd Mar 2011 11:18

I don't agree with what he is doing but

The notional income argument seems a bit thin. Given half an hour and a cigarette packet, I am sure that he could come up with a plan for the future growth of the company that will require, oh around £100k or he could demonstrate that future work is expected to be scarce and it would be irresponsible of him as a director to declare a dividend at this time.

It seems they might get him via his director's loan (if he has one) although that may to be knocked out the park by some simple cash transfers.

I am no expert in any matters pertaining to benefits but I can't help but think that even our system cannot be this bad as to allow this.

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By Ding Dong
23rd Mar 2011 11:48

Interesting

Thanks for the replies, I am minded to not move this one forward!

I am concerned as to whether or not it is legal. It seems to me he is doing nothing wrong as Frustrated with HMRC says it just seems so wrong.

I think the housing benefit is OK as I know of a case where a lowly paid nurse gets a lot of her rent paid as her income is not enough to live on so he may be legally correct there too.

As I said in my post it just makes me sick or upset that the system can be abused like this. I know theer are accountants out there - and some of the aweb readers may be in this clan - who advocate, ney sell this type of strategy to clients - I used to work for a firm who were very aggressive at it.

I JUST DON'T LIKE IT!

 

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By Ernest N Dever
23rd Mar 2011 11:58

Policing potential new clients

I stand to be corrected by those more knowledgeable on Money Laundering, but I thought that a duty to report arose if, in the course of our professional work, we became suspicious that someone was in possession of the proceeds of a crime.

If somebody is operating "rather well" and claiming tax credits that he isn't legally entitled to, I'd be suspicious that he was doing it on purpose, quite frankly.  Under S.45 of the Tax Credits Act 2002, an offence is committed if a person is knowingly concerned in any fraudulent activity (like deliberately not mentioning income that might, for all he knows or cares, be attributable to him for the purpose) with a view to obtaining payments of a tax credit.

Turning to the notional income rules, there are 3 that could be in point:

depriving oneself of incomeincome available if claimedproviding services to another person (like your own company) for less than full earnings.

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By Luke
23rd Mar 2011 12:34

In agreement with Ernest N Dever

with regard to policing potential clients.  If the information comes to you "in the course of your work" as an accountant / tax specialist etc then it is potentially reportable whether or not the person is actually a client.

I would also agree with the notional income aspect being his downfall. 

I do have a single director/ee company who is claiming WTC and CTC and actually needs it to live on.  His company made large losses in the first few years due to buying a useless franchise and paying over the odds, we did a (valid) impairment review and wrote this off in full in year 2.  The company is barely making an annual profit now (in yr 4) but still has accumulated losses and director's loan account.  He takes a minimum wage salary under contract in order to be eligible for WTC and then is drawing down his loan account, as and when the company has the cash, in order to be able to live.  We looked into the notional income aspect but as the company has no profits to pay him a higher salary or declare dividends then that rules out that issue.

I should point out that the client in question has never claimed anything in his life, has 20 odd years in the forces plus previous jobs etc so could not be counted as a 'scrounger'.  He is genuinely cash strapped at this point.

I would never recommend it to a client as a strategy though.

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By frustratedwithhmrc
23rd Mar 2011 13:06

Treading on some very familiar quicksand here.

Having read through the Notional Income rules, it is still arguable that none of these would apply in the case sited if NMW is followed and capital is accrued within the company and neither paid to the employee / director / shareholder in any form.

Equally, if the company had £100,000 sat in the bank, it could be argued that these are necessary corporate reserves, provisions for Corporation Tax and NOT deemed income or such other nonsense that HMRC comes up with from time-to-time.

Beginning to smell as bad as IR35, which is another good reason for abolishing tax credits and simply not taxing low earners and those with families to support in the first place.

This was shown in the OECD/CARE report which showed that the UK was the worst country in the major economies for taxation of single earner couples with families. If we are going to support families in the same way as pretty much every other developed economy in the world, then we should tax them less in the first place rather than taxing them with one hand and paying them back with the other.

The bureaucratic system that we have at the moment is the cause of the problem rather than anything else. It's only purpose seems to be to employ a vast army of civil servants to recycle tax monies that should never have been taken to start with.

However, this is developing into a Daily Mail type rant, so let's leave it at that.

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By DMGbus
23rd Mar 2011 13:20

Here's what some expert (expensive training courses!) advisors s

Stated below are the exact words published by a firm that claim to be experts on Tax Credits.   I'd like to challenge them on this for my own peace of mind (*), but as attending their courses seems to cost between £400 and £1,400 that's not a viable option (even though they say I could earn £60k easy money by attending their course, buying their software and following their advice).

(*) EITHER these "experts" are correct, in which case I'd be short-changing / badly advising clients NOT to exploit the rules  OR these experts are wrong in which case following their advice would lead to all sorts of problems that I wouldn't like to get involved with.   "correct" = legal, not fraudulent, but considered by many to be morally bad (#) ; "wrong" = fraudulent and best kept a great distance away from.

(#) : I'm not sure why we should be worried about something being morally bad, as HMRC get away with doing things morally bad all the time.   If the rules are weak and result in an anomally then it's HMRC's fault and not for us to have moral qualms about it is it?  The most important point is "is it legal" - the expensive expert advisors say "yes".

Anyway, here's what these self-proclaimed experts claim to be the case:-

" Tax Credits are paid to individuals undertaking qualifying remunerative work – which is defined as ‘work which he performs under a contract of service....’ Advisors to directors following “low salary/high dividends” tax planning should not be discouraged by this wording. The second part of the definition states ‘....or in the office in which he is employed’. Directors are office holders and ‘office’ is defined separately as.... ‘a reference to being employed includes a reference to being the holder of an office’.

Paul and Anne – Owed money by their business
Paul and Anne are married with three young children. Paul owns a small building company, and the company owes him £220,000. Normally Paul takes salary of around £6,000 to use up his personal allowance and a tax efficient dividend of around £20,000 to give him the total of £26,000 a year he needs to live on.
After taking professional advice, instead of the company paying him a £20,000 dividend this year it has paid him a £20,000 repayment of the money it already owes to him. So Paul has received the same amount from the business as normal, but he has also received an extra £9,552 cash from the Tax Credits system.
Once again, the “income disregard” rules mean that as long as Paul’s income doesn’t go up by more than £25,000 they will receive another £9,552 as Tax Credits next year also. And if certain technical conditions are met, they may also receive that amount of Tax Credits for quite few years to come."

 

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By WhichTyler
23rd Mar 2011 13:28

Small print

We discussed a similar case here and while the drawn income was low, he was ignoring the rules about his capital. I'll bet your man hasn't told them he owns shares worth £100k when claiming benefits!

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By frustratedwithhmrc
23rd Mar 2011 14:17

If there money in the bank is provisions / reserves then what is

If there is £100,000 in the bank and the value of provisions / reserves is say £100,000, then I accept that there would be some value of the shares between £0 and £100,000, but without an independent valuation it would be impossible to say what that value would be.

Outside of HMRC's ivory tower where the idiotic concepts of "Service Companies", "Notional Contracts" and (specifically in this case) "Deemed Income", there appear to be any number of ways that an owner manager of a limited company could operate within the rules (but certainly not the spirit) of tax credits legislation, to be paid tax credits they would not be paid if the entire income of the company (less tax) was paid directly to the owner manager.

In reality, what director would really do this? The whole purpose of developing a business is to expand it so that it generates business over and above the simple economics of £x salary per year. This is why people setup businesses, mostly because they have worked for various employers and think (often quite rightly) that they can do a better job.

To achieve all of this requires risk, sacrifice and most importantly the build-up of capital within the business. It seems reasonable that during the early years of a company, when there are substantial costs, but little revenue that an owner manager could and should be able to claim tax credits - since they are a part of the tax code.

That there may comes a point where there is more money in the company than is required, but that is not a straight-forward black and white decision that HMRC would probably like to make. Certainly there are many perfectly good reasons for retaining significant amounts of money in a company which have nothing whatever to do with making a false case for claiming tax credits.

However, this is almost a classical argument between what constitutes tax avoidance and tax evasion. If there is a genuine reason, substance and intention here, then it seems reasonable for the owner manager to continue to receive tax credits, provided he meets the criteria defined in the legislation.

I still don't like it, but we're talking about things like intention and to a certain extent making moral judgements. I just don't think it's as black-and-white as that.

 

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By nogammonsinanundoubledgame
23rd Mar 2011 14:29

@ DMGbus ...

... When exactly did you go on this course from which you quote?  I only ask because there was a regulatory change to the definition of qualifying remunerative work, the original form of which sounds suspicously like what you have quoted, but which subsequently excluded the automatic qualification of an officeholder who was not also under a contract of employment.

Rebecca Benneyworth wrote an article on this very subject a while ago, and for once the AWeb search engine didn't let me down:

https://www.accountingweb.co.uk/topic/tax/working-tax-credit-entitlement-rules

With kind regards

Clint Westwood

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By cymraeg_draig
23rd Mar 2011 14:37

REPORT

 

The information came to you "in the course" of your work.You clearly "suspect" illegality, as your post here shows.You therefore have a duty to file a report. It is then for the authorities to decide whether or not his actions are in fact illegal.

 

I dom't believe in filing reports if I can possibly avoid it - but where people are blatantly defrauding the benefits system, and therefore denying those who actually deserve it, I will always make an exception.

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By DMGbus
23rd Mar 2011 15:27

Tax credits advisors provided this information in September 2010

The text that I quoted was supplied to me by the "expert" advisors in September 2010.

I did NOT attend one of their courses, had I done so I'd have specifically asked about danger issues such as suppressing income by drawing off capital instead of taking dividends, which they categorically have stated is OK for Tax Credit claim purposes.

The information provided by these "experts" makes no reference to declaring or valuing capital (and I can't remember seeing any such reference in Tax Credits guidance paperwork).

Just maybe the "experts" guidance notes are out of date, incomplete or simply don't tell the whole picture.

 

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By Ding Dong
23rd Mar 2011 16:33

Fraud or not

I raised this post as I was "narked" about the fact that people can do this. I didn't initially think it was fraud but on reading some posts it appears others do.

On the other hand there are some whho are saying it is not fraud, the rule merely allow him to do it.

I have to admit to being confused as well as "narked" now!

I have tried to ascertain the facts and have re-read the articles referred to and what is income deprivation etc and currently seem to have "splinters in one's posterior" as I am sitting on the proverbial fence.

I think a report might well be the best way forward just in case it is deemed fraud as CD mentions

Interestingly, the words fraud and SOCA have been used a few times but the effervescent Mr Winch has not yet stepped in, arise Sir David and bestow your Wisdom upon us!

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By DMGbus
23rd Mar 2011 18:35

No MLR report due UNLESS...

For there to be a report to SOCA there has to be ALL THREE of the following present:-

A crime committed (clearly NOT the case if certain tax credits experts are correct in their assertions)A benefit accrued (yes, but just as there would be with placing funds in an ISA) (yes, just as there would be having a low salary and high dividend) (yes, as there would be in accelerating capital expenditure to just before the FYE)An intent to commit a crime (clearly not present if expert advisors are being relied upon)

Remember SOCA don't want reports on immoral / unfair conduct if that conduct is NOT illegal!

PS. The referred to October 2009 article on AWeb ended up with DOUBT and NOT CERTAINTY as to the tax credits situation for low salary directors and their tax credits claims - there were opinions expressed both ways, the old chestnut of NMW even got an inconclusive mention.    If indeed there is a crime committed surely its by expert advisors who "should know better"? 

Therefore, if someone feels "morally bound" to report this non-crime, then please report the expert advisors if you really believe that they're being dishonest in their advice saying go ahead and make tax credit claims in these circumstances.

Remember - distasteful "unfair" tax planning / tax claims are NOT crimes unless a law has been broken,  and I have to say again that some experts clearly state that the claims in question are legitimate and therefore no law broken - unless the expert advisors are being untruthful.

 

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By cymraeg_draig
23rd Mar 2011 19:01

Correction

For there to be a report to SOCA there has to be ALL THREE of the following present:-

A crime committed (clearly NOT the case if certain tax credits experts are correct in their assertions)

 Posted by DMGbus on Wed, 23/03/2011 - 18:35

 

I have to correct you - a report is required if you SUSPECT a crime MAY have been committed.

We are, I'm afraid, not permitted to investigate it ourselves and ascertain if any crime has in fact been committed, only if we suspect one might have been committed.

Clearly the OP suspects this might be the case, and, where "experts" give opposing opinions, that obviously does nothing to remove that suspicion.

 

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By aiwalters
28th Mar 2011 11:33

Capital disregard

I actually deal with this quite frequently and have discussed many times with various local authorities regarding housing benefits. The HB Regs are very clear that a director is an employed earner ( same as for IT and NI purposes) and whilst he has capital (£100k in the company) this is disregarded. See Section 49(6) of HB Regs 2006. Regarding notional income; having dealt with HMRC on the tax credits issue this has come up numerous times and I do not know one case of HMRC challenging tax credit claims based on notional income. There are many many reasons not to declare a dividend if it's not needed and I see absolutely no suspicion requiring a MLR here.

 

Corrected reference above to HB Regs

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By garethgreen
28th Mar 2011 11:45

small companies rate

 I am guessing that the company is only paying the small companies CT rate. If so, is this being endangered by the retention of £100,000? If this is just earning investment income for the company (rather than being used for the purposes of the trade), arguably the company is not entitled to the small companies rate, as it is an investment company. (I am assuming that the £100,000 would represent a large portion of the total assets of the business, and would therefore outweigh any business assets.)

Furthermore, if this money is simply being put on deposit, it is probably earning much lower interest than it would if invested by the individual himself, because most of the savings accounts with the best rates of interest are only available to individuals, not companies.

These two factors might partially erode the apparent benefit of claiming the tax credits, even assuming the individual is genuinely entitled to them.

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By WhichTyler
28th Mar 2011 12:07

Wrong on Housing Benefit

Just because aiwalters has persuaded the authorites to disregard the capital value of shares, doesn't make it right!

The guidelines are clear:

Capital means your savings, investments and the value of property and land owned but not occupied by you.

For the purposes of HB/CTB, certain important types of capital are ignored, such as personal possessions and your home. You will not get HB/CTB if your capital is worth more than £16,000 unless you are entitled to Guarantee Credit of Pension Credit.

If the OP's client is saying that his business (with £100k in bank and presumably similar net reserves) is not worth £16k, I'll do him a favour and take it of his hands for that!

I'm rarely on the same page as CD, but very much agree with him here! At least he's paying his CT (I hope)

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By Malcolm Veall
28th Mar 2011 12:17

Tax Credits not benefits

Interesting to hear the outrage from various correspondents.  Difficult to separate the "benefits fraud" comments as applying to housing benefit, (which I know nothing about), from the Tax Credits issues.

In the context of tax credits one thing that is clear is that a number of professionals who have researched the law find that it is valid for director/shareholders to make tax credits claims while following the low Rem/managed dividends route.  It seems that a number of correspondents find this outrageous & warranting a Money Laundering Claim.  Do they also think that they should therefore report all the director/shareholders who have followed routes like Jersey-based EBTs etc - personally I find that more repugnant than a couple who have left the cosy world of employment and find that, for a year or two, the government will support them via tax credits if they time their dividends carefully.

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By frustratedwithhmrc
28th Mar 2011 12:31

But it is not just a year or two, this could be abused continual

Provided that there is a legal basis for treating capital that acrues within the company as not the income of the taxpayer, then it would appear that the owners might be able to continue to receive state subsidies for low pay and housing benefit.

Clearly this is wrong, but I can't see anywhere that it is specifically illegal.

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By jonbryce
28th Mar 2011 12:41

Re Housing benefit when working

If you are in a low paid job, you can claim housing benefit.  However you can't get housing benefit if your savings are over £16k, and that includes the value of his company shares.

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By aiwalters
28th Mar 2011 12:52

@whichtyler and @jonbryce. The shares are disregarded

See http://www.legislation.gov.uk/uksi/2006/213/contents/made section 49 (notional capital) paragraphs 5 and 6 which says:

 

(5) Where a claimant stands in relation to a company in a position analogous to that of a sole owner or partner in the business of that company, he may be treated as if he were such sole owner or partner and in such a case— (a)the value of his holding in that company shall, notwithstanding regulation 44 (calculation of capital) be disregarded; and (b)he shall, subject to paragraph (6), be treated as possessing an amount of capital equal to the value or, as the case may be, his share of the value of the capital of that company and the foregoing provisions of this Section shall apply for the purposes of calculating that amount as if it were actual capital which he does possess.

(6) For so long as the claimant undertakes activities in the course of the business of the company, the amount which he is treated as possessing under paragraph (5) shall be disregarded.

 

So the shares are disregarded as per para 5, and the £100k which para 5 would mean he is in possession of, are disregarded as per para 6

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By JWB
28th Mar 2011 13:19

Potential unwanted client

A bit of a sidetrack to the main issue but ... You say you quoted double your normal fee in the hope that he wont proceed ...  If he did engage you and you decided that you didn't want to go ahead with him as a client - how would you go about 'losing' them?

This is particularly relevant as I had a potential client meeting last week with someone with whom I do not want to go ahead and act for and I have been putting off sending out the L of E .. Is there a polite way to opt out?

 

 

 

 

 

 

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By ShirleyM
28th Mar 2011 13:50

The cowards way out

If I don't want a client (and feel I cannot be direct with them) I tell them ........

I am a general practitioner, not a ??? (insert tax, industry sector, or whatever, here) specialist. I would not be happy to undertake this work as I am not confident that I have all the necessary knowledge and experience. I feel that your company (business/tax affairs, or whatever is relevant) requires an accountant with more specialised expertise.

In the past, the potential clients have thanked me for my 'honesty' and gone away happy!

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By Roland195
28th Mar 2011 14:15

I am not sure if I should be fascinated or appalled

Are we actually concluding that and ignoring the ethics, the situation outlined by the OP is legitimate?

It occurs to me that this may even just be the tip of the iceberg - I assume he would also (or his children more properly) would qualify for higher levels of state educational support for example. It would be interesting to see if anyone challenged his current arrangement if he would qualify for legal aid.

 

 

 

 

 

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By keithas
28th Mar 2011 15:04

I'm not sure I understand the outrage expressed here

What's the difference between avoiding tax via low salary + dividends, and the knock-on effect of gaining benefits from the same? Both are gaining financial benefit that is not enjoyed by employed people with the same disposable income.

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By frustratedwithhmrc
28th Mar 2011 15:18

If you are going to draw a line in the sand, this is where you d

When it comes to using loopholes in the law to avoid taxes (as long as they are successful), that is one thing, but to use loopholes in the law to enrich yourself from state coffers, that is another thing entirely.

Due to the capital exemption mentioned previously, this might be legal theft, but it's still theft.

Regardless, I would be tempted to leave it a few weeks and then either telephone or write to the DSS explaining the situation and leave it for them to decide whether it is legal or not. They have a whole army of lawyers on staff over their, so they are better equiped to untangle this than we are.

That might sound like being a snitch, but as I said before, this is theft.

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By ShirleyM
28th Mar 2011 15:22

Morally wrong

It seems unjust that someone who could take dividends can choose not to, and then expect the taxpayer to subsidise their lifestyle. I don't agree this is good tax planning, my ethics wouldn't allow it and I would send them off to another accountant. My definition of this strategy would be 'greed' and an 'Im all right Jack - you're the mugs' type attitude.

I appreciate that someone starting up a new company, or sole-trader business, may need a helping hand until the business is profitable.

This does not seem to be the situation here. There are funds available for dividends. the argument that the money may be reserved for future expansion makes no difference. I dont think the taxpayer should subsidise his family, his house purchase, or his plans for expansion. If he were a sole trader, he would be expected to fund expansion AFTER paying tax and providing himself with a living.

Comparisons have been made to the IR35 workarounds. I dont think the two strategies are comparable. IR35 places a higher tax burden on those affected. This strategy isn't tax avoidance, it's avoiding having to pay your own living expenses!

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By Roland195
28th Mar 2011 15:25

Granpa Simpson:- "The government. I didn't earn it, I don't nee

I don't know about anyone else but my outrage comes from the fact that in real terms, this man does not need any state support but does so anyway (and no doubt convinces himself he is only claiming what he is "due").

I believe there is a difference between mitigating a liability to tax and actively claiming support that one does not need.

 

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By cymraeg_draig
28th Mar 2011 16:33

.
I'm not sure I understand the outrage expressed here 

Posted by keithas on Mon, 28/03/2011 - 14:04

 

Then you need to work with disabled people occasionally and see how they are treated. This man is taking benefits that otherwise could be paid to someone who actually deserves them - like someone I know who has developed MS, needs a chair lift to get up stairs, and because he's worked hard and saved all his life, cant get a penny in help and is told to pay for it himself out of his savings.

Meanwhile, this guy is hiding his "savings" by leaving them in the company so that he can milk the system.

Illegal ?      - Not sure.

Immoral ?  - Definitely.

 

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By Malcolm Veall
28th Mar 2011 17:09

Outraged?

I feel outraged when I make a, (legally totally unchallengeable & negligent if not done), only or main residence election for a client who owns a large house and a valuable holiday house.  That client has no need to save capital gains tax, it is just that tax minimisation is what is required.

I totally agree with WD on the desperate needs of various people for adequate benefits - but there is no philophical difference between playing the game to save tax and playing the game to maximise benefits.

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By Rebecca Benneyworth
28th Mar 2011 17:54

Nobody has mentioned the underpayment rule

The Tax Credits (Definition and Calculation of Income ) Regulations 2002, Reg.17
If a claimant provides a service for another person and:

the other person makes no payment of earnings or pays less than for a comparable employment, trade or business in the area; andthe Commissioners for Revenue & Customs are satisfied that the other person has the means to pay for, or to pay more for the service, thenThe claimant is treated as having an amount of employment or trading income that is reasonable for that employment, trade or business.
 

This is treated as Notional Income for the purpose of the tax credits claim.

So you need to decide whether the claimant is knowingly incorrectly stating his income for the purpose of his tax credits claim and whether he has done so deliberately for the purpose of gaining more tax credits. If so he is committing an offence and you report him. If you don't think he is doing it knowingly, then after you inform him of his responsibilities to recognise this notional income and to advise HMRC that tax credits have been overpaid for some years and he refuses to regularise the position you report him. Alternatively you may think he has been paid the going rate for his work for the company in which case you have exhausted the possibilities on this one.

Leaves a very nasty taste in the mouth. I've said it on other threads, but seeking taxp[ayer support when you can well afford to support yourself and your family is a national disgrace. (His kids will get EMA until it is abolished and special help from university of they decide to go... the list goes on). Cynical abuse of the system.

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By cymraeg_draig
28th Mar 2011 18:08

I disagree

......... but there is no philophical difference between playing the game to save tax and playing the game to maximise benefits.

 

Posted by Malcolm Veall on Mon, 28/03/2011 - 16:09

 

I disagree.

The government allocates £xbillion to benefits.  If it has to be spread amongst more claimants, then everyone gets a little less.

If you pay more or less tax that wont make any difference to the amount allocated to benefits. You could double the tax take and the benefits budget wouldnt be raised by a penny. 

If government has surplus tax income you can guarantee it wont go on those who need it - it will be spent on some pointless stupid scheme - like bidding for the olympics, building the millenium dome, or some other waste of public money, and, 9 times out of 10 it will be spent in London.  

So in the case outlined by the OP this person is stealing the bread out of the mouths of the more needy and more deserving - literally.

 

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By garethgreen
28th Mar 2011 18:11

Philosophical difference

To me, claiming benefits you are not entitled to is morally the same as stealing. That is, you are taking someone else's money that you are not entitled to. Carrying out tax planning to legitimately minimise the amount of your money that you have to hand over to the state is not stealing. The effect on public funds might be the same, but that does not mean they are morally equivalent.

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By Malcolm Veall
28th Mar 2011 18:54

Philosophical difference

I do find this a very interesting point.

If we can avoid the detail on notional income etc:

The rich individual who, "arranges his affairs", by a stroke of the pen, saving paying tax on £1m gain made through spending spare cash on a luxury holiday home is on moral high ground, but the hard-working chap who "arranges his affairs" to maximise tax credits a disreputable benefits cheat.

Is it in the semantics? "Benefits" vs "Tax" - would you all feel differently if the same, (working, not holidaying), chap was not paid tax credits but received the same financial funding from the state by way of a reduction in his corp tax bill.

 

WD, you devalue your comments by ranting about ill-advised public funded projects.

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By cymraeg_draig
28th Mar 2011 19:19

.

WD, you devalue your comments by ranting about ill-advised public funded projects.

 

Posted by Malcolm Veall on Mon, 28/03/2011 - 17:54

 

Not at all - I speak from experience.  Having been involved in local politics at a county level, and, having carried out audits of EU funded projects on behalf of the EU, I have first hand knowledge of the vast amount of waste of public funds.

The point being that any additional taxes claimed by stopping tax avoidance would not be spent on the disabled or sick but would be wasted on yet more pointless projects. 

The OPs client however, is stealing from other benefit claimants and from the taxpayer.  A totally different matter.

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By cymraeg_draig
28th Mar 2011 19:19

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WD, you devalue your comments by ranting about ill-advised public funded projects.

 

Posted by Malcolm Veall on Mon, 28/03/2011 - 17:54

 

Not at all - I speak from experience.  Having been involved in local politics at a county level, and, having carried out audits of EU funded projects on behalf of the EU, I have first hand knowledge of the vast amount of waste of public funds.

The point being that any additional taxes claimed by stopping tax avoidance would not be spent on the disabled or sick but would be wasted on yet more pointless projects. 

The OPs client however, is stealing from other benefit claimants and from the taxpayer.  A totally different matter.

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By cymraeg_draig
28th Mar 2011 19:19

.

WD, you devalue your comments by ranting about ill-advised public funded projects.

 

Posted by Malcolm Veall on Mon, 28/03/2011 - 17:54

 

Not at all - I speak from experience.  Having been involved in local politics at a county level, and, having carried out audits of EU funded projects on behalf of the EU, I have first hand knowledge of the vast amount of waste of public funds.

The point being that any additional taxes claimed by stopping tax avoidance would not be spent on the disabled or sick but would be wasted on yet more pointless projects. 

The OPs client however, is stealing from other benefit claimants and from the taxpayer.  A totally different matter.

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By chatman
28th Mar 2011 19:35

" there is no philophical difference between playing the game to

I couldn't agree more. 

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By cymraeg_draig
28th Mar 2011 22:23

.

 there is no philophical difference between playing the game to save tax and playing the game to maximise benefits."

I couldn't agree more. 

 

Posted by chatman on Mon, 28/03/2011 - 18:35

 

Except that one is in accordance with parliaments intentions - the other most definitely is not.

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By mwngiol
29th Mar 2011 09:22

Parliament's intentions

"Except that one is in accordance with parliaments intentions - the other most definitely is not."

Is it in accordance though, or is it largely exploiting loopholes and taking advantage of clumsy ill-thought-out legislation? Which is the same as what the guy in the OP's question is doing.

Artificial tax avoidance and benefits fraud are both theft. The tax avoidance is like a shop assistant taking money before putting it in the till, benefit fraud is like taking the money after putting it in.

If you don't have a problem with aggressive tax avoidance then I don't see how you can possibly have a problem with the OP situation.

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