Tax Planning Black Hole

If you are a self-employed customer of Fair Balance, your accounting date is 31 March. This puts great pressure on us to complete your Accounts and Tax Returns in the 10 months to 31 January but there is a VERY GOOD REASON.

If you are not our customer and you have another accounting date, you may get your Tax Return done quickly, but you should be worrying about how much tax you have to pay when you close your business. You need to take this up with your accountant - why?

Let is say your accounts run to 30 April and you are making £30,000 a year (paying no Higher Rates). This is good - back in 1997 you were only making £12,000 a year - business truly has boomed. The profits to 30 April 2004 are reported on your 2005 Tax Return so as he has already had 11 months to complete them, your accountant seems very efficient when, in the early summer of 2005, he asks you to sign your 2005 Return. You think he’s a great fellow, so efficient and you have your Return in before 30 September so watch the Revenue TV ads with satisfaction that you have employed the right advisor.

On 31 March 2006 you incorporate/retire/fall ill/sell your business (whatever). Now comes the question of your 2006 Return.

The profits to be reported on this Return are £57,500 for the period at £30,000 per annum from 1 May 2004 to 31 March 2005 less ‘transitional overlap relief’ of £11,000 which was set in stone when Self Assessment was invented. Having been used to a bill of about £7,500 you now have one of some £13,000.

The problem comes from the fact that Transitional Overlap Relief was fixed in 1997. It is a set figure, not a proportion of profits and not index-linked. If you have this problem it will not go away, it gets worse as profits increase through inflation and business growth.

We have taken legal advice - you will have an uphill struggle winning compensation from negligent accountants who turn a blind eye to the problem. They may be in the wrong but do you want to risk paying a barrister to prove it?

We have a number of strategies which have brought people out of this - call David Ross for a
chat on (01202) 513666 or (07967) 253111 or email David