Save content
Have you found this content useful? Use the button above to save it to your profile.
AIA

Lorber v HMRC: Score draw at tax tribunal

by
11th May 2011
Save content
Have you found this content useful? Use the button above to save it to your profile.

The tangled personal life of Paul Lorber landed him in two personal tax tribunal cases at the same time. In its April episode, TAXtv looked at the cases that covered both Section 336 and 660 issues and resulted in two very different outcomes.

Presenter Tim Good explained that the first case (TC00986) centred on the “element of duality” where PA Lorber, working in his role as a local councillor, claimed a deduction against his income in respect of various expenses.

His claims tangled with the restrictions in Section 336, but prompted a recognition from the Tribunal that “in some cases there can be an element of personal benefit, such as will not deny the whole of the relief being allowed for tax”, Good explained.

The expenses were for childcare costs, subscriptions and communications expenses. On top of that Lorber claimed one sixth of the costs he incurred working at home in connection with his duties as a councillor.

HMRC’s representative argued that for home working element, only the scale rate agreed with the Association of Local Councillors would apply - a figure of just £135 per year.

The Tribunal decided that the childcare costs and subscriptions were not tax deductible, as they were not incurred “wholly, exclusively and necessarily” in the performance of the duties; but sided with Lorber regarding the communications expenses.

It looked at whether or not the “duality principle” should apply to the communications expenses.

Good explained the principle and implications: “The Revenue argued that part of that expense was going to benefit the political party of which Mr Lorber was a member and therefore not connected with his office as a local councillor. But the tribunal held that that benefit was incidental and did not therefore taint the deductibility of the communication expenses as a whole.”

The tribunal ended up agreeing with Lorber regarding the use of part of his home for his duties as a councillor and agreed that he should have a deduction as he had in previous years for one sixth of the actual costs, amounting to £335.

The second case TAXtv discussed (TC00977) concerned the settlements legislation and how it applied to Lorber’s “somewhat chequered family background”, as Good put it. The case related to interest on a joint bank account Lorber continued to hold after separating from his wife, as well as interest on bank accounts and building societies for the benefit of their two children.

Lorber argued that the whole of the interest on these account should have been taxed on his wife, and gave evidence that he had alerted HMRC that the interest was being paid to his wife. However, he failed to make a form 17 declaration, and the Tribunal had no choice but to apply the legislation, resulting in an equal division between them.

According to Good: “It hadn’t been filed and the Tribunal was unable to uphold his appeal against the assessment to half of the income on that bank account.”

Their children also benefited from building society accounts – one of which was in the names of the parents. Lorber’s father had transferred £190,000 into that account and part of the money was used to buy a home for Mrs Lorber.

HMRC argued that the income from those accounts should be taxed on Mr Lorber under the parental settlement rules.

Lorber argued that he was not a settlor - he simply had a power of attorney over his father’s financial affairs and the reason why the building society account was in his and his children’s mother names was because legally their children couldn’t open the account themselves.

The tribunal agreed with Lorber that the income from those accounts should indeed be taxed on the children and noted that the income had been properly returned on the children’s tax returns over the relevant years.

Because of this evidence, the tribunal disagreed that the settlements legislation applied.

TAXtv's Giles Mooney commented: “It’s quite interesting that one person could have two of the biggest areas of personal tax issues at the same time. He’s got 336 and 660 going on at the same time.

“The 336 claim is potentially very useful for people to appreciate because it shows that although people immediately jump to the conclusion that it’s either entirely business or completely duality and therefore you can’t have everything, just reminds us actually that if there is this inconsequential private use then you can claim these deductions.”

Visit shop@accountingWEB to subscribe to TAXtv. TAXtv's free Budget round-up is also available, in which Tim Good, Giles Mooney and Neil Warren explain the key points of this year's announcements.

Tags:

Replies (0)

Please login or register to join the discussion.

There are currently no replies, be the first to post a reply.