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Employer pays for employees to enter local lottery

How do I categorise this in my accounts?

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As a perk, I offer my employees free entry into a local non-profit lottery which provides interest free loans to local businesses in order to help create jobs. There is a weekly draw with cash prizes.

This costs £1 a week per employee, and I, the employer (Ltd Co) pay for them to enter.

How do I categorise this outlay in my accounts?

Many thanks in advance.

Replies (49)

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By atleastisoundknowledgable...
30th Nov 2019 22:28

Is it something that your staff know that you are virtually guaranteed to do every week? If not, it might be classed as a trivial benefit.

Most ppl would just stick it in ‘general/sundry/misc’.

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Replying to atleastisoundknowledgable...:
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By AndrewN
30th Nov 2019 22:51

It’s setup as a monthly standing order to the lottery.

Wasn’t sure if it’s classed as (and therefore needs to be declared as) a benefit?

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By Tim Vane
01st Dec 2019 01:59

Of course your real problems will only begin when one of those tickets wins. That’s when it gets interesting.

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By tonycourt
01st Dec 2019 09:18

For the accounts it's salaries, benefits, staff costs or something similar.

The tax treatment might, as atleasti says, be a trivial benefit and exempt. The tax treatment of any winnings is that they are not taxable if the lottery is generally open to the public regardless of whether the cost of the tickets is a taxable or exempt benefit.

If the tickets and winnings are pooled rather than specific tickets being allocated to specific employees it would be advisable to use a syndicate agreement along the line of that recommended by the National Lottery
https://www.national-lottery.co.uk/c/files/syndicate-pack.pdf

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By AndrewN
01st Dec 2019 09:33

Thanks for the replies. Each employee is entered separately and receives their own ticket number. Any winnings are for a specific player’s number so there would be no issues around who gets the prize money. It’s a public lottery so anyone can enter. We just pay for their entry.

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RLI
By lionofludesch
01st Dec 2019 10:39

Sadly, as you do it every week, you've blown your chances of it being a trivial benefit.

It needs to go on the employees' form P11ds.

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By tonycourt
01st Dec 2019 11:08

The frequency of benefits does not directly determine whether the trivial benefit exemption applies. The problem is that habitual perks might eventually be seen as part and parcel of remuneration and thus a reward for services, which is specifically a barrier to the exemption. Search AW for the article about bacon sandwiches and an HMRC officer getting their lines crossed on the point of frequent/regular perks.

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By tonycourt
01st Dec 2019 11:08

The frequency of benefits does not directly determine whether the trivial benefit exemption applies. The problem is that habitual perks might eventually be seen as part and parcel of remuneration and thus a reward for services, which is specifically a barrier to the exemption. Search AW for the article about bacon sandwiches and an HMRC officer getting their lines crossed on the point of frequent/regular perks.

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Replying to tonycourt:
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By atleastisoundknowledgable...
02nd Dec 2019 08:10

tonycourt wrote:

The frequency of benefits does not directly determine whether the trivial benefit exemption applies. The problem is that habitual perks might eventually be seen as part and parcel of remuneration and thus a reward for services, which is specifically a barrier to the exemption. Search AW for the article about bacon sandwiches and an HMRC officer getting their lines crossed on the point of frequent/regular perks.

The frequency may not be entirely relevant, but as a Standing Order, the OP would be hard pressed to argue that each week is a related item, so the benefit is actually £52 pppa, over the £50 limit. Also against him is that presumably it’s the same people each week, so - as previously mentioned - it could be seen as remuneration.

OP - If you sent a office-wide email each Monday saying ‘I’m going to do the lottery this week, does anyone else want a ticket? ’ then tickets were purchased on that basis, I’d say it would be a trivial benefit. If it so happened that the same people each week said “yes please”, that’s not your fault.

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Replying to atleastisoundknowledgable...:
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By tonycourt
02nd Dec 2019 08:37

On frequency; that's just what I said! On the other points; a devil's advocate would find it easy to argue against your interpretation. For example, a standing order can be cancelled at any time and by itself does not create an obligation for the employer to buy the tickets for the employees, or at all. Plus there is no concept of "related" benefits in the trivial benefits exemption rules that I'm aware of. Also, because the benefits are the same it doesn't make them related. For example, I give an employee a £50 Amazon voucher for his birthday and the same at Christmas - two different benefits.

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Replying to tonycourt:
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By atleastisoundknowledgable...
02nd Dec 2019 09:28

tonycourt wrote:

Plus there is no concept of "related" benefits in the trivial benefits exemption rules that I'm aware of. Also, because the benefits are the same it doesn't make them related.

My meaning was that if the e’ee gets a £1 ticket every week, for which a Standing Order is set up, it smells very much like the whole year is actually 1 benefit.

Actually, as I write this, I am reminded of the gym example - PureGym is a rolling 1 month contract and so isn’t classed a 1 benefit but 12 benefits each < £50.

I retract my 1 benefit position (although I’d prefer the payment not to be by SO) but the question of remuneration is still hovering around (both for the OP and maybe PureGym?).

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Replying to Desert Orchid:
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By tonycourt
01st Dec 2019 21:08

The difficulty in determining whether the benefits in the circumstances described in the OP are within the exemption has already been mentioned. That said, I think your analysis is wrong. You don't aggregate the value of the benefit over the course of a year, it applies instance-by-instance for each employee. Each benefit must be looked at individually, i.e. the fact that the same benefit is provided more than once doesn't make it a single benefit.

Example; an employer paid for an employee's health club membership for a year at £50 per month. Even assuming the other conditions for the trivial benefit exemption were met it would still not qualify because the employer is paying for a year's membership of £600, because it's paid by instalments of £50 each makes no difference.

Contrast the example above with another employer who pays £50 for an employee's monthly club membership ad hoc , and does so for twelve consecutive months. Assuming that the other conditions of the exemption are met, each month's membership would be a separate and trivial benefit despite being of the same value/cost as in the previous example.

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Replying to Desert Orchid:
Psycho
By Wilson Philips
01st Dec 2019 22:11

That is wrong - the £50 is not an annual limit.

And it doesn’t matter if there are 2, 20 or 20,000 employees.

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Replying to Desert Orchid:
RLI
By lionofludesch
01st Dec 2019 22:04

Desert Orchid wrote:

It's not £1 a week, it's actually £50 a year x number of employees, so 20 employees = £1,000. That is somewhere between £200 & £400 in tax a year, which might not be considered a "trivial benefit" should some zealous HMRC officer start delving.

Utter tripe.

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Replying to lionofludesch:
By Ruddles
02nd Dec 2019 10:45

Seconded - he should stick to book-keeping and leave tax advice to those that know what they’re talking about.

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Replying to Desert Orchid:
By Ruddles
02nd Dec 2019 10:44

Desert Orchid wrote:

Your repeated insults are becoming boring and annoying.


No more so than your repeated and obsessive attempts to ignore a permanent ban
Desert Orchid wrote:

you have a habit of insulting and accusing anyone new


Not anyone - just you
Desert Orchid wrote:

you have admitted in a post last week that you are stalking me by monitoring my comments


Er ... no I didn't. That's just your warped mind. What I did say is that I receive a notification when someone - anyone - posts to a thread on which I have commented.

And what happened to "I will therefore ignore any further comments you make"?

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Replying to Desert Orchid:
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By tonycourt
02nd Dec 2019 10:31

That's far from definite. I reiterate my earlier comments and those of others.

While an overzealous inspector might take that view, and could be correct in doing so if the circumstances fit, it ought (I stress "ought") to be fairly easy to dissuade him or her where the circumstances are such that the exemption applies.

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Replying to Desert Orchid:
Psycho
By Wilson Philips
02nd Dec 2019 11:27

The point that I was making was that you appear to be under the impression that the quantum of tax that is involved is relevant ("That is somewhere between £200 & £400 in tax a year, which might not be considered a "trivial benefit") - it is not.

And of course if an "over zealous" Inspector were to take the same line with me he would be quickly reminded of what the legislation actually says.

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Replying to Wilson Philips:
RLI
By lionofludesch
02nd Dec 2019 11:50

Moreover, multiplying the tax by the number of employees doesn't make it any less trivial.

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Replying to lionofludesch:
Psycho
By Wilson Philips
02nd Dec 2019 12:12

Indeed

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By AndrewN
01st Dec 2019 22:16

For the record it's £1 a week, and there are only 4 employees. £60 each per annum (£5 a month standing order).

I am unsure from the replies given if this requires a P11D to be completed?

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Replying to AndrewN:
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By tonycourt
01st Dec 2019 22:25

If the benefit is exempt then no, if it isn't exempt then yes.

Refer to responses so far in context of the facts you have and make a decision.

Edit. The amount and frequency are not the issue, the key question you need to answer is whether the benefit is a reward for services.

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Replying to tonycourt:
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By Matrix
02nd Dec 2019 06:31

I doubt Andrew pays for any old Tom, Dick or Harry’s lottery ticket so how can it not be a reward for services?

If the employees are not buying their own lottery ticket because Andrew buys theirs then there is an expectation that he will buy it each week. In any case it is not a trivial benefit but he could potentially put a PAYE SA in place.

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Replying to Matrix:
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By tonycourt
02nd Dec 2019 08:09

It seems you might be reading my last post out of context of what when before. If an employer buys something in return for work (services) of an employee it's taxable unless specifically exempt. You allude to this in the first sentence of your second paragraph, which is exactly the point was making and made in earlier posts.

Why is it not a trivial benefit (apart for the reason just stated)?

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Replying to tonycourt:
RLI
By lionofludesch
02nd Dec 2019 09:34

tonycourt wrote:

Why is it not a trivial benefit (apart for the reason just stated)?

Because there's a point where it becomes expected.

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Replying to lionofludesch:
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By tonycourt
02nd Dec 2019 09:47

That was the reason stated!!!!!

Edit Actually, to be more accurate, expected isn't enough, it has to become an implied entitlement.

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By Tax Dragon
02nd Dec 2019 12:15

The critical condition (that y'all have been debating) is obviously D. HMRC views this (with some justification) as testing whether the benefit is remunerative. Not all remuneration is contractual – so I miss the relevance of some of tonycourt's comments, in which Tony seems to be discussing whether a benefit, regularly provided, becomes contractual. (That's Condition C.)

The conversation with the over-zealous Inspector someone hypothesised (tozish) will run "Aha! You’ve forgotten Condition D. The benefit was not remunerative." "What was it, then?"

Matrix makes (and tozish would make) a valid observation: the employer is providing the benefit only to employees. Why?

(How can we have gotten so far into the thread and no-one has asked the "why?" question?!)

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Replying to Tax Dragon:
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By tonycourt
02nd Dec 2019 13:18

If I understand your comments correctly I see what you're saying but I think you're missing the point I hoped I was making. I'm pretty sure we agree on all points but just to check I'm not going off half-cocked on that:

First; you're correct that condition C is potentially a the problem where there are frequent/regular benefits, and while I was only responding to the previous posts which alluded to condition C, that's not the only point I was making in my replies, I was also considering the "why?" issue. I 'll come at it more direct to the context of your post and hope it makes sense to you.

Just because a benefit is only for employees of the employer doesn't make it remuneration (a reward for services). If it did there would be no point to the trivial benefits exemption because condition D could never be met. In other words, that something is provided only to employees is irrelevant to the exemption. It's in the nature of a benefits in kind that they are given to employees (family or household). It follows that there must be circumstances where a benefit is not remuneration (or D would catch them). That moves us to your question "why?" is the benefit being provided.

An employer can make a wholly gratuitous gesture (e.g. the infamous bacon roll), that while a benefit in kind it is not a reward for work, instead it's say, because it's a cold wintry day and the staff look like they could do with some sustenance (veggie burgers for the non-omnivores). Contrast that with a bacon roll/veggie burger for everyone who turned up for work an hour early to help with a stock-take - remuneration, condition D applies to thwart the exemption.

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Replying to tonycourt:
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By Tax Dragon
04th Dec 2019 10:19

Bacon roll/veggie burger... isn't that sustaining staff so they can work a bit more productively (in tozish's mind)?

But while I would stand up for your right not to be taxed on the bap, that's a distraction from the question. Let me bring you back to the weekly purchase of lottery tickets in point, which aren't being bought for nourishment/warmth because the office isn't heated. Why are they being bought?

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Replying to Tax Dragon:
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By tonycourt
04th Dec 2019 11:10

The points and example I made are entirely germane to the question of ”why?” . The fact that it involves food is a distraction doesn't invalidate the principle. That being, a benefit can be entirely gratuitous, or at least not a reward for services. If that wasn't possible then, as I said in my last post the exemption would always be ineffective because of condition D. I don't follow why you can't see that. Perhaps you could help me understand by giving an example of when you think the exemption would apply.

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Replying to tonycourt:
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By Tax Dragon
04th Dec 2019 11:33

When it is for personal reasons - e.g. flowers on granny's passing. The key is that the event that triggers the 'benefit' is not related to anything that happens at, or because of, work or the employment.

The OP even started with "as a perk". Remember "all salaries fees profits and perquisites whatsoever"?

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Replying to Tax Dragon:
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By tonycourt
04th Dec 2019 12:21

Unfortunately for us the only person who knows for sure (although, no doubt we each have our suspicions) why he bought the vouchers is the employer; we can only guess at his motive. It could, for example, be that he wants to support the charity and is happy for others to benefit from a win rather than himself. That is why I have avoided saying that it definitely is or isn't exempt.

That said, in principle I think your understanding of what the exemption can apply to is odd. It is unquestionably intended to exempt something that would otherwise be taxable, i.e. a benefit resulting from employment e.g. a birthday or Christmas gift for a member of staff or their family etc.

As you know the exemption was introduced to replace HMRC's practice of ignoring low value benefits. HMRC's employment income manual did (probably still does - I'll check later) refer to birthday and Christmas gifts as examples. The exemption was widely viewed as more generous than its predecessor-practice, even by HMRC who consequently felt the need to say that it would keep the exemption under review in case it is significantly abused.

In a nutshell, your suggesting that the exemption can't apply to a benefit resulting because of an employment is silly because that is its very purpose.

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Replying to tonycourt:
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By Tax Dragon
04th Dec 2019 12:33

You misunderstand me. (Obviously, since birthdays come under the granny-passing category.)

If HMRC follows this forum, it will be seeing plenty of evidence of abuse. Some people seem to think you can have a birthday every week.

Make too much hay and the sun will stop shining - it's the perennial stupidity of accountants that think they are onto a good thing.

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Replying to Tax Dragon:
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By tonycourt
04th Dec 2019 12:59

Viz HMRC - if not evidence of abuse then at least misuse of the exemption - I wouldn't argue with your take on that. Whether that's enough to peak HMRC's interest sufficiently to ask the government to tighten the reigns through regulation is another matter. I suspect not but as they say; never say never! Or perhaps watch this space!

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Replying to tonycourt:
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By Tax Dragon
05th Dec 2019 09:43

Out of interest, Tony, do you think Tim's infamous gift card example, with which he concluded his article https://www.accountingweb.co.uk/tax/business-tax/trivial-benefits-far-fr..., represents an abuse, a misuse, or a correct use of the exemption?

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Replying to Tax Dragon:
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By tonycourt
05th Dec 2019 11:04

This is my theory and thoughts on the issue:
At first blush I thought the arrangement suggested by Tim good was unpalatable but not necessarily abusive. My reasoning is thus (bear with the apparent rambling, it’s rambling with a reason):

The OTS proposed the idea to regularise existing HMRC practice. While it existed only as a practice any individual inspector could choose not to follow it without having to justify their reasons if he or she thought there was abuse. The legislators wanted to incorporate this anti-avoidance facility in the conditions of the exemption (hence in particular conditions C and D) of s.323A. The effect of these is to only exempt benefits that are genuine gifts (i.e. something given without stings attached or quid pro quo). In theory that makes the exemption self-regulating because an employer can’t use it to reduce its staff remuneration costs. Or to put it another way, using the exemption is an extra cost. This makes overuse of the exemption unlikely (assuming the conditions are followed) because it leaves employers out of pocket with the only reward being staff goodwill. However, controlling directors posed a problem.

If I remember correctly the original proposal did not include the £300 cap. Someone realised that without it directors who have wherewithal to modify the level and nature of the income they take from their company are in a perfect position to grant themselves purely gratuitous benefits that wouldn’t fall foul of the conditions of the exemption. Hence the need for a cap.

So, I believe that HMRC’s thinking was along the lines of, “we don’t want to penalise directors by not allowing the exemption available to their employees, but if we don’t put up a barrier, we are opening the door to directors rewarding themselves with countless tax and NI-free benefits.”.

Therefore, I believe that HMRC were entirely aware that the exemption was in effect a giveaway to directors who were minded and, in a position, to take advantage of it. That is, while unpalatable it’s a relatively minor and expected side effect of regularising the former practice.

Therefore, while Tim Good’s idea using vouchers for directors to maximise use of the exemption might leave a bad taste, it works (providing all the conditions are met) and more than that, HMRC was quite prepared for it.

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Replying to tonycourt:
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By Tax Dragon
05th Dec 2019 14:14

Thank you for your thoughts, Tony. Much appreciated that you took the time.

Ever thought of becoming a politician? I feel as if you might have answered my question, but I don't know what the answer was.

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7om
By Tom 7000
04th Dec 2019 09:56

Thats easy
Trivial Benefit - no tax or benefit in kind.

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Replying to Tom 7000:
RLI
By lionofludesch
05th Dec 2019 09:58

Tom 7000 wrote:

Thats easy

The length of the thread suggests that it is not.

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By pauljohnston
04th Dec 2019 17:49

OK. I suspect that an HMRC PAYE inspector would maintain that this is a benefit and is either PIId or payrolled. But realisticvally for £60 per year I think it would be lost in sundry or even office expenses. I did consider the payrolling but the cost just made it laughtable.

Lets hope one of the employees wins and has a great christmas. The boss however will still be at work

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By Caber Feidh
04th Dec 2019 21:05

Does the OP risk encountering objections to his scheme if he ever recruits an employee with a fundamentalist religious objection to gambling?

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Replying to Caber Feidh:
RLI
By lionofludesch
05th Dec 2019 15:41

Caber Feidh wrote:

Does the OP risk encountering objections to his scheme if he ever recruits an employee with a fundamentalist religious objection to gambling?

Bless me !

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Replying to Caber Feidh:
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By tonycourt
05th Dec 2019 16:35

Possibly, but religions tend to find a suitably hypocritical way to justify such arrangements to meet their ethos. In this case say,they could call the lottery a "reallocation of wealth scheme".

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Replying to tonycourt:
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By Tax Dragon
05th Dec 2019 16:47

tonycourt wrote:

Possibly, but religions tend to find a suitably hypocritical way to justify such arrangements to meet their ethos. In this case say,they could call the lottery a "reallocation of wealth scheme".

I would see that justification as distasteful but not abusive.

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Replying to Tax Dragon:
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By tonycourt
05th Dec 2019 17:02

Touché :-)

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Replying to tonycourt:
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By Tax Dragon
13th Dec 2019 06:51

As a footnote... I was curious that, when I suggested that evidence of abuse existed, you countered with a mention of misuse. As if the exemption were a drug and "misuse" was less serious than "abuse".

I accept that my use of English may be non-standard (and indeed this might be another example of that :-)) but here goes. We have clarity of government and with it certainty of Brexit [though we don't know what sort], let's see if we can do the same with my (mis)understanding on this point....

To my mind, in the context of a tax relief, exemption, etc:

Abuse is using the relief etc in a situation in which its use may be justified (probably with a little bit of 'help') but for which it was not intended;
Misuse is using the relief etc in a situation in which it simply does not apply.

Misuse is (again, to my mind) tantamount to evasion. It's thus worse than abuse. (The fact that we have a GAAR not a GAMR reinforces my thinking. We don't need a GAMR because misuse is already illegal.)

So, on this morning of clarity - welcome it not - my uncertainty as to your comments continues. To my mind (sorry, can't currently think of another phrase), your allegation was much worse than mine.

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Replying to Tax Dragon:
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By Tax Dragon
13th Dec 2019 06:57

Oh, and for the record, I still don't know what you meant in context by "distasteful", but using my definitions I don't hesitate in saying that Tim's planning at the least abuses the exemption.

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Replying to tonycourt:
RLI
By lionofludesch
05th Dec 2019 16:51

tonycourt wrote:

Possibly, but religions tend to find a suitably hypocritical way to justify such arrangements to meet their ethos. In this case say,they could call the lottery a "reallocation of wealth scheme".

What if a rich bloke wins ?

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Replying to lionofludesch:
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By tonycourt
05th Dec 2019 17:01

It's still a redistribution of wealth - Robin Hood in reverse.

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