Like many sole practitioners, I started out as a wage slave and only became self-employed about midway through my career. It was something of a happy accident really. It certainly wasn't planned that way!
I spent most of my early career in financial services and worked for various banks, finance houses and insurance companies throughout the 80s and 90s, studying part-time for the ACCA exams and finally qualifying in 1988. I had a CV as long as your arm, but all that background actually did me a lot of good, as it gave me a breadth of experience few people in the industry had.
It didn't teach me very much about being an accountant though, not a real one anyway. That only really happened when I started contracting in the late 90s and running my own company. Maybe it was the buzz of being (more or less) my own boss or maybe it was just the tax savings, but I never wanted a "permanent" job after that. In just a couple of years, I learnt more about tax returns, and more importantly tax planning, than in the whole of my career up to that point. In fact, the other contractors started asking me to do their accounts too, so I got my practising certificate in 2000 and re-branded the business as Acumen Accounting.
Back then it was just a spare time practice, as I had a full-time job running the finance function for a group of captive insurance companies. This came in handy when IR35 first reared its ugly head in 2000, as I had a separate contract with each company and, crucially, was able to draft the basic terms and conditions. This kept me on the right side of the taxman, but IR35 also encouraged me to take on more private clients and market my burgeoning practice as a real business, mainly through the website. This worked quite well, as few accountants had their own website in those early internet days, and I was able to steal a march, so much so that when I came to a cross-roads in my career a couple of years later, the way forward was obvious.
The group had decided to outsource their insurance operations, and only a small team of us remained to manage the handover. I had a choice between finding a new position or staying on 2 days a week for a while and using that interim period to dip my toe in the water and see if I wanted to go into public practice full-time. It was a no-brainer. I went for it, and I've never regretted it for a single moment ever since.
For one thing, I actually feel as though I'm doing something useful these days. My clients are really appreciative of the work I do for them and rely on my advice. So different from the old days, when I felt more like a cog in a machine, and I certainly never really felt appreciated. Back then, I seemed to spend more time sorting out staff issues or sitting in weekly meetings than doing any useful work, and I was getting bored with the repetitive cycle of head office reporting and regulatory returns.
I came to another career cross-roads in 2008 when the "old job" finally came to an end and simultaneously my largest client created his own accounts department, precipitating a big drop in turnover. I decided to focus more on the tax side of things, so set up a new brand called Acumen Tax Solutions and marketed it with a series of fact sheets, which ranked highly on the internet and drove business towards the main website.
I've always enjoyed tax more than accounts and by that time I'd added considerably to my knowledge and experience. Anyway, there's not much money in number-crunching any more. Those days are over. You have to be more of an all-rounder now and advise on all sorts of things, from IT to HR to tax, and I find the tax work a lot more fulfilling. I've even found the time to write a couple of Tax Cafe books which have helped to put me "on the map" so to speak.
It was also around that time I started posting on Accountingweb. I've always found this site to be both a brilliant resource and a great way of communicating with fellow professionals. I also get a lot of satisfaction from helping others, which is one of the things that makes me stay in public practice. It's been a lot of fun too, even when I'm crossing swords with some of the more contrary posters (of whom I am undoubtedly one). Accountingweb certainly boasts more than its fair share of us. Well, that's my story, for anyone who's interested. It would be fascinating to read other members life stories and see where they come from.
You're lucky to actually get the chance to do any tax planning on this as a lot of chargeable events are only brought to the accountant's attention after the end of the tax year when it's too late to do anything!
You should charge a big fat fee for saving so much tax.
I totally agree with you on all these points except your apparent conclusion that the payments listed by the OP appear to be habitual or in keeping with an established intention. I don't think we can say that for sure on the larger ones, not without further information anyway.
For instance, there was a large gift of £24k to one child in 2012/13, £30k to one child in 2013/14 and £20k to one child in 2015/16. These stick out like a sore thumb from the other gifts which were shared between all 7 children.
They might well have been part of a settled pattern of gifting but we don't know without some insight into the motivations behind them. They might just as easily have been one-off gifts on the spur of the moment, to fund a business or buy a new house for example, rather than a documented intention to make inordinately large gifts to individual children on certain occasions.
All I'm saying is that surplus income is not the only prerequisite. We can't just assume they are all normal without further enquiry.
The £30k in 2013/14 is well over excess income anyway. The £24k in 2012/13 would qualify taking one year with the next after deducting annual exemption. The £20k in 2015/16 would qualify for that year alone after deducting the annual exemption and £250 per person small gifts exemption (assuming they're not for the same person).
It's got nothing to do with capital/income splits or IHT403 and nobody is expecting HMRC to suggest anything.
It's got all to do with the legislation and what does and doesn't qualify for s21. Transfers of value that aren't normal expenditure don't qualify full stop. You can chance your arm by putting them on page 6 rather than page 2 of IHT403 but as an executor you run the risk of footing the tax bill yourself if you get it wrong, letter or no letter.
HMRC have already lost in court on normal expenditure and set a precedent in the Bennett case. It doesn't mean everyone will be able to take advantage of that leeway. It still needs to accord to a settled pattern of expenditure. If you have something in writing, then fine. Otherwise, tread carefully.
Sorry to be a pedant, but please please will everyone out there stop spelling "loses" as "looses". You see it so often now and it makes you lose (not loose) the will to live.
I think you're focusing too much on the surplus income aspect and overlooking the other requirement for s21 to apply - i.e. that the gift must have been made as part of the "normal expenditure" of the transferor.
In the words of J Lightman in Bennett & Others v IR Commissioners 1995, a gift must accord with "the settled pattern of expenditure adopted by the transferor" in order for s21 to apply.
In practice, this means that large gifts of cash must either be frequent enough to be habitual or relate to a special occasion such as a wedding, birth or graduation that the deceased had a stated intention, preferably made contemporaneously in writing, to mark with a larger than normal gift. If such an intention existed, then even a single large gift would qualify so long as it would have repeated on a similar occasion in future had death not intervened.
Otherwise, there is a risk that it may not be accepted as part of her normal expenditure but treated instead as a special one-off gift, which would not qualify for s21.
I suspect your own tax return is also correct, as you appear to misunderstand the rules.
Actually Tim I was right about that as it was caused by the error reported in 2017/18 Online Filing Exclusion # 90. They've known about this since May apparently.
The HMRC Calculator is offsetting dividends against the PA in preference to interest in certain scenarios, just like I said. A fix is planned for 2018/19.
It's really worrying that software firms can get this right but HMRC couldn't for 2 years in a row now. Maybe it's all part of some dastardly plan to privatise the taxman. Well, the private sector could hardly do worse!
Potentially this could cost a taxpayer £1,437.50 if they had no earned income but substantial amounts of both dividends and interest. Fortunately I'm only £36 down and I can't be bothered to file a paper return for that.
Just goes to show though, always do your own calcs.
Isn't it worrying that a large accountancy firm can make simple errors like this. I wonder if the partners know what is going on in their name.
Of course there should be VAT on the per diems. They are not disbursements. They are taxable outputs the same as the fees. I've come across agencies making this mistake but not a professional firm of accountants.
Maybe they are confusing expenses re-charged by their suppliers with employee expenses and thinking the tax and VAT treatment is the same. That may well be the case if they follow the same internal process.
I wonder how many clients of theirs they are making this mistake with. Perhaps they should get us on board as consultants!
Ah that was it. I knew I was missing something.
How about cancelling your account?
No one's even mentioned IR35 yet. Have you considered that?
What exactly does this other person on your payroll do?
HMRC do have the power to restore companies struck off under Spongebob and apply for a winding-up order. The Official Receiver will then chase the director for the money he owes the company. They have up to 20 years to do this I believe.
HMRC could alternatively treat the cash taken out of the company as undeclared remuneration in the absence of any proof of loan/dividends. They then have the power under Regulation 72 of ITEPA 2003 Condition B to transfer the debt to the director, which will apply if he knew that salary was being paid without any PAYE deductions.
Not quite the easy option that people think it is.