A Tax Glossary
Originally sent: November 7, 2007As I have written quite a lot about tax recently, it occurred to me that some of the terms used in the tax world might need a little explanation. Here is a brief introduction to the words your tax inspector might use.
- Abroad – A country other than England, Northern Ireland, Scotland and Wales, where if you are very lucky you might get away without paying some of your UK tax. Unfortunately Revenue and Customs do not regard the Isle of Wight as abroad. If you do live abroad, see “Day” below.
- Allowable losses – The Revenue are under strict instructions that all businesses must make a profit (before tax, of course, as the tax bill will usually turn the profit into a loss). This is a government initiative to turn UK PLC into a very profitable enterprise. Only under extreme circumstances are you allowed to make a loss, hence “allowable losses”, and if you ignore these instructions you will suffer a tax penalty.
- Assessment – This used to be what you think of the Revenue. However, the Revenue got so fed up with how they were assessed they changed this to “Self Assessment”. Now you can only tell them what you think about yourself, and I understand these reports make much nicer reading.
- Bare Trust – A trust where no matter what you might say to the contrary, the Revenue know that everything really belongs to the beneficiary, who will probably find the cupboard is bare when he or she tries to get to the assets as the Revenue will already have taken it all in tax.
- Bond washing - Tax avoidance device for turning income into capital gains by selling the bond before interest is received. The interest is thus included in the gain rather than being taxed as income. Effective bond-washing allows you to clean up.
- Charge - The sudden and rapid collection of a tax. Avoidance may be fatal, as in the Charge of the Light Brigade.
- Customs - First cousins of the revenue, so-called because of their strange habits.
- Day - 24 hours ending at midnight. A visit to the UK beginning at 9 am and ending at 5 pm the same day is thus deemed never to have happened. You could therefore spend your days in London and your nights in St Helier and as far as the taxman is concerned you were never in the country. Bear in mind, however, that our sneaky taxman sometimes has ways of taxing you even if you are not here. In the pre-budget statement the Chancellor brilliantly suggested a “day” might not need to include the night.
- Death - to stop paying taxes suddenly.
- Deem - Revenue-speak for; 'I don’t like reality, so let's pretend things are different'.
- DI - Inspector who runs the District and is Divinely inspired. Like the Pope but with slightly more authority.
- Discretionary Trust – This used to be quite different from an Interest in Possession Trust, but since last year Revenue and Customs have in Interest in Possessing the assets in all trusts.
- Distress - Customs seize your goods. Very upsetting.
- Domicile – Your home country, or what the Revenue “deem” is your home country (see above). If you are connected in some way with more than one country and want to work out where you are domiciled this is an easy calculation. Work out how much UK tax you would pay if UK domiciled, and how much you would pay if domiciled in the other country. Whichever gives the highest tax bill is likely to be where the Revenue deem you live, although if you are not an Egyptian owner of a department store you may get away with slipping thirty thousand used notes under the counter to change their mind on this.
- Election – The taxpayer’s equivalent of the Revenue’s “Deem” – where you pretend something has happened even if it has not, for example pretending you bought everything you owned on 31st March 1982 even though that is patently complete nonsense. Alternatively, a way of putting people in power who will pretend something has happened even if it has not, for example that they have actually done what they promised to do before you put them in power even though that is patently complete nonsense.
- Higher paid - An employee who earns more than £8,500 pa. Indicator of Revenue salary levels. In the pre-budget statement the Chancellor suggested everyone in the country should be higher paid, which is what most employees have been saying to their employers all along.
- Interest - Shown by the Revenue if you don't declare all your bank accounts.
- P60 – The form that you must refer to each year to tell Revenue and Customs how much your employer paid you and how much tax they deducted, even though they know this already. Please do not confuse a P60 with a P45, as you may get a shock if you ask your employer for the latter.
- PAYE - Pay All You Earn.
- PET – a domestic animal that lives longer than seven years. If your pet dies earlier than this it will fall into the inheritance tax net, which means Revenue & Customs get to keep it.
- Ring fence - Separate and isolate for tax purposes. Similar to ring roads which separate drivers from their destination and isolate town centres.
- Tax Payer’s Charter – A document issued by Revenue and Customs in which they define the rights and obligations in the relationship between tax office and tax payer. It is a very simple document – they have the right to tell you to pay tax and you are obliged to pay it.
- Tax Year – The tax year starts on the 6th April. This means everything you earn in the first three months is yours to keep, but every penny you earn for the rest of the year belongs to the taxman. Originally the year began on 25th March, because for some bizarre reason it was felt important to start the year 9 months before Christmas Day. When the Julian calendar was replaced by the Gregorian calendar in 1753 somehow a number of days were lost. I have heard one section of Revenue and Customs is still looking for them and blames the computer system installed under the administration of Thomas Pelham-Holles, who was unavailable for comment. As a result, the tax year began on 5th April. This lasted until 1799, when the Revenue generously allowed us one extra day of money for ourselves, making 6th April the date when all the money we earn has to go to the government.
My thanks to A. J. Carroll, who supplied a number of these definitions in his book “Bluff Your Way in Tax”, published by Ravette Publishing Ltd, Unit 3, Tristar Centre, Star Road, Partridge Green, West Sussex, RH13 8RA. I take the blame for the rest.
Regards,
Graham Dragon
Adviser Breakthrough Solution
Adviser Breakthrough Training Solutions Ltd. takes no responsibility for loss occasioned by any person acting or refraining from action, or in consequence of any other person acting or refraining from action, as a result of the material in this article.
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