.png)
.png)
09 October 2000
Question 15 of the main tax return asks: 'Do you want to claim any of the following reliefs?' and goes on to invite a tick in a 'No' or 'Yes' box. If one answers 'No' one seemingly goes on to question 16. If one answers 'Yes' one is requested to supply monetary details.
Question 15 of the main tax return asks: 'Do you want to claim any of the following reliefs?' and goes on to invite a tick in a 'No' or 'Yes' box. If one answers 'No' one seemingly goes on to question 16. If one answers 'Yes' one is requested to supply monetary details.
We have a client with a low taxable income who nevertheless makes charitable payments under deeds of covenant and under Gift Aid. Because of his low taxable income and high personal allowance (he is over 65), and high married couple's allowance, there is no tax liability on his income if he ticks the 'No' box. A liability does arise, however, if he ticks the 'Yes' box because of tax on the retained charges.
In view of the wording of the question, can he tick the 'No' box?
(Query T15,691) Hope &.. .
The simple answer is 'No'. The client has made payments under Deed of Covenant and Gift Aid and so the charities will have reclaimed the tax there.
The charge under section 350, Taxes Act 1988 exists to ensure that where tax is deducted at source and can be reclaimed, the payer must have paid an equivalent amount of tax on the income out of which the payment has been made.
Therefore if a covenant is paid out of income taxed at the basic or higher rate, no liability arises, but if the income has only been taxed at the starting rate of 10 per cent or has not been taxed at all, there is a liability.
By not including details of the covenant and Gift Aid payments, the return would be incomplete and the tax liability of the client would be understated. In this respect, if 'Hope' is a member of a professional body, then if he did not complete the box, he would have to consider the ethical guidance of his body in respect of the completion of tax returns.
Next one has to consider if matters can be improved in the future. 'Hope' mentions that his client has a spouse. If that spouse has income such that they pay tax, that spouse should make the Gift Aid payments from now on.
The deeds of covenant are more difficult, as the client will be under an obligation to make the payments personally. Could the spouse transfer income to the client, or is there a joint interest bearing account where the facts would permit the completion of a Form 15 to allocate a larger proportion to the client? By doing this, the client could become a taxpayer and so avoid a charge.
It should be noted that the effect of this charge is reduced from 6 April 2000, as from that date the taxpayer must only have paid an amount of tax equivalent to the tax reclaimed. This will mean that many people paying tax at only 10 per cent will escape the charge.
Finally, a request should be made that the taxpayer should be removed from the self-assessment system. If this is possible, then even if a letter is sent to the Inland Revenue every year detailing the circumstances of the client, it is quite possible that no action will be taken to recover that tax if it is not considered to be sufficiently material. This would not present the ethical difficulties associated with incorrect completion of a tax return. Hodgy.
As might be expected, this query has arisen as a result of the Inland Revenue allowing possibly suggestive wording on tax returns. One can of course in this case, as in no doubt many others, tick the 'No' box, but the only description of this action, without causing too much offence to people acting like this, is arrogance.
As is no doubt known, from 6 April 2000 the Finance Act 2000 merged the rules governing charitable deeds of covenant with those covering Gift Aid payments under section 25, Finance Act 1990, which says that the gift has been made after deduction of income tax at the basic rate, and is treated as having been received net by the charity. However, where the tax deducted on the gift exceeds the tax brought into charge on the donor, then the donor shall be assessed accordingly to make up the difference.
The charitable deeds of covenant rules stated similarly that an individual who is liable to United Kingdom income tax may deduct and retain basic rate tax from payments made under a valid deed of covenant. An individual whose total income tax liability is less than the amount of basic rate tax on the payment must deduct and pay over to the Inland Revenue basic rate tax on the shortfall (sections 348 and 349, Taxes Act 1988).
Also when the (first) payment is made, the donor needs to fill in a form R185 (Charity) re deeds of covenant or R190(SD) re Gift Aid payments; and on both these forms the donor is certifying to the charity that the tax deducted on the payment will be accounted for either by deduction from other income, when received in the tax year concerned, or by payment directly by the donor to the Revenue.
Ticking the 'No' box could turn out to be a big mistake. N.K.
We have a client with a low taxable income who nevertheless makes charitable payments under deeds of covenant and under Gift Aid. Because of his low taxable income and high personal allowance (he is over 65), and high married couple's allowance, there is no tax liability on his income if he ticks the 'No' box. A liability does arise, however, if he ticks the 'Yes' box because of tax on the retained charges.
In view of the wording of the question, can he tick the 'No' box?
(Query T15,691) Hope &.. .
The simple answer is 'No'. The client has made payments under Deed of Covenant and Gift Aid and so the charities will have reclaimed the tax there.
The charge under section 350, Taxes Act 1988 exists to ensure that where tax is deducted at source and can be reclaimed, the payer must have paid an equivalent amount of tax on the income out of which the payment has been made.
Therefore if a covenant is paid out of income taxed at the basic or higher rate, no liability arises, but if the income has only been taxed at the starting rate of 10 per cent or has not been taxed at all, there is a liability.
By not including details of the covenant and Gift Aid payments, the return would be incomplete and the tax liability of the client would be understated. In this respect, if 'Hope' is a member of a professional body, then if he did not complete the box, he would have to consider the ethical guidance of his body in respect of the completion of tax returns.
Next one has to consider if matters can be improved in the future. 'Hope' mentions that his client has a spouse. If that spouse has income such that they pay tax, that spouse should make the Gift Aid payments from now on.
The deeds of covenant are more difficult, as the client will be under an obligation to make the payments personally. Could the spouse transfer income to the client, or is there a joint interest bearing account where the facts would permit the completion of a Form 15 to allocate a larger proportion to the client? By doing this, the client could become a taxpayer and so avoid a charge.
It should be noted that the effect of this charge is reduced from 6 April 2000, as from that date the taxpayer must only have paid an amount of tax equivalent to the tax reclaimed. This will mean that many people paying tax at only 10 per cent will escape the charge.
Finally, a request should be made that the taxpayer should be removed from the self-assessment system. If this is possible, then even if a letter is sent to the Inland Revenue every year detailing the circumstances of the client, it is quite possible that no action will be taken to recover that tax if it is not considered to be sufficiently material. This would not present the ethical difficulties associated with incorrect completion of a tax return. Hodgy.
As might be expected, this query has arisen as a result of the Inland Revenue allowing possibly suggestive wording on tax returns. One can of course in this case, as in no doubt many others, tick the 'No' box, but the only description of this action, without causing too much offence to people acting like this, is arrogance.
As is no doubt known, from 6 April 2000 the Finance Act 2000 merged the rules governing charitable deeds of covenant with those covering Gift Aid payments under section 25, Finance Act 1990, which says that the gift has been made after deduction of income tax at the basic rate, and is treated as having been received net by the charity. However, where the tax deducted on the gift exceeds the tax brought into charge on the donor, then the donor shall be assessed accordingly to make up the difference.
The charitable deeds of covenant rules stated similarly that an individual who is liable to United Kingdom income tax may deduct and retain basic rate tax from payments made under a valid deed of covenant. An individual whose total income tax liability is less than the amount of basic rate tax on the payment must deduct and pay over to the Inland Revenue basic rate tax on the shortfall (sections 348 and 349, Taxes Act 1988).
Also when the (first) payment is made, the donor needs to fill in a form R185 (Charity) re deeds of covenant or R190(SD) re Gift Aid payments; and on both these forms the donor is certifying to the charity that the tax deducted on the payment will be accounted for either by deduction from other income, when received in the tax year concerned, or by payment directly by the donor to the Revenue.
Ticking the 'No' box could turn out to be a big mistake. N.K.
