What taxing times we live in

A couple of tax stories on the front pages at the moment, which is quite fun for those who are either in the group who take an interest in this sort of thing or are Spurs supporters or, as in my case, both.

Not that anyone reads this but I guess if I comment directly on the 'arry R case then I'm technically in contempt of court. So I won't. But the principle at issue is this: if you receive money as a result of your job, then it's taxable and you are obliged to declare it. But if someone just gives you money as a present or as a loan, then that's fine, it's not taxable (leaving aside the slightly esoteric issue of inheritance tax) and you are not obliged to tell anyone about it. Simple, eh?

So how does the tax man know the nature of any given amount of dosh which has ended up in your bank account (or your dog's bank account)? Usually it's pretty obvious: employers are not in the habit of dishing out ex gratia amounts to their staff, except the odd gold watch on retirement or a bottle of plonk at Christmas. But if the money does not come from your employing company but personally from one of your employer's directors, and if said director asserts that it's a gift and if there is no contractual basis for the payment (not that this fact alone makes any difference) well who are HMRC to deem otherwise? The answer is they can't...but a jury can. Essentially, guilt is in the eye of the beholder.

More exciting, from a technical point of view (I can tell you're on the edge of your seats) is this business about the head honcho at the Student Loans outfit being paid via a limited company. This is an old wheeze, particularly popular with computer programmers, many of whom work on a temp basis and have their money paid to Geeks R Us Ltd rather than to themselves. Geeks R Us Ltd is probably 100% owned by Paul the Programmer and has just the one employee: Paul. Our mate Paul will need some money of course and the money is in the company's account, not his, but rather than have Geeks R Us pay him a salary, which leaves both him and the company liable to those irritating national insurance payments, he will extract his dosh as a dividend. Dividends are not tax-deductible so the company will pay corporation tax but this is at a lower rate than income tax, especially if you're potentially a high earner. And Paul will have to pay income tax on the dividends he receives, albeit their tax treatment is a bit more favourable and most importantly, Paul can make the most of this by deciding exactly how much the company pays in dividends, and when.

Doesn't sound all that exciting so far? Well as hinted at above, the big deal is that dividends are not subject to national insurance and between the employer's and employee's part of this, that's a saving of around 20% or so. Not bad. The other attraction is for the ultimate employer (viz the Student Loans company in this case.) They are simply paying a company, Geeks R Us (or perhaps Fatcat Bureaucrats R Us in this instance) for its services. You'll have spotted that this means no employer's NI payments for them plus, it's one less employee to worry about which is good news as employees come with a whole load of baggage in the shape of legal protection against sacking, health and safety obligations and God knows what else. As they are just paying a company, no need to worry about any of this nonsense - trebles all round!

Now the more astute of you may be thinking, if this is OK for IT people and top civil servants (and the student loans chap is not the only one - see today's papers and Private Eyes passim), why is it not OK for the rest of us? Why can't Dave the salesman or Diana the receptionist use this personal service company route for their wages?  Well the answer of course is that in theory, they can.

But before you get too excited, the operative words here are "in theory". There's 3 problems: first, running a company, even a paper one, does cost money so you need to earn a reasonable whack for it to be worth it, plus the less you earn, the less are the potential tax and NI savings (can't avoid tax if you weren't liable for it in the first place - people often forget this). Second, HMRC did introduce a specific measure a few years ago to try and stop this kind of thing. There are ways round this but it's one more obstacle. Third, your employer would almost certainly just say no, even though, as we've seen, this type of wheeze can be very much in their interests too.

So there's one rule for some and one for others. Such is life. It reminds me of the old saying that there's two types of tax-payers: pay as you earn, and pay when you like. Most of the latter group now seem to live in Italy where apparently there are many people on the bread-line (according to their tax returns) who somehow manage to afford to drive around in Ferraris. Now that is clever...I expect their income comes by way of gifts...

By the way, if you're in the second group, did you get your self-assessment return in on time? If not, you must be one of the 1 million that HMRC say are going to be fined for late filing. Ouch! Blame the postman...or your dog.