HMRC have published a number of toolkits to assist in the completion of personal and company tax returns this year. These are on the following subjects:  

  • Small Companies Relief
  • Capital Gains Tax on Land and Buildings
  • Trust and Estates
  • Capital Allowances
  • Private and Personal Expenditure  

And there are more to come.  

I think these are really good. They all follow the same format which is an introduction, a checklist and an explanation of the various points in the checklist. You may not agree with the explanations (indeed they can be oversimplified and sometimes maybe not right), but that does not matter − you do not have to agree with them. They are to assist in avoiding errors and indeed have been deliberately designed to focus on those areas where HMRC’s experience shows that errors frequently arise.

HMRC explain that following the toolkit will enable you to demonstrate that you have taken reasonable care in dealing with the entries on the tax return, and therefore the client will be protected from any penalty if something goes wrong. You do not have to use the toolkit, of course…

However, they do have to be looked at quite carefully. For example, in the Capital Gains Tax on Land and Buildings toolkit, they say that when looking at valuations “it is important to instruct a qualified independent valuer to make sure the valuation is made for the purposes of relevant legislation and meets RICS or equivalent standards”. Surely this is overstating the position. It could obviously be helpful in some circumstances, but it will clearly not be important in most cases relevant to the target audience of these toolkits. Why should the taxpayer have to go to the trouble and expense of a full professional valuation when market value can be established in other ways?

HMRC go on to say that “some issues are sometimes overlooked when instructions are given, for example the potential for development of land”. This is even worse. If a lay person instructs a fully qualified independent valuer, surely the professional would know far better than his or her client about the potential for development of the land. It is his or her business. To suggest that the client has to instruct professional experts in the field and then tell them how to do their job is going a bit far.

In the Small Companies Relief toolkit it is explained that in counting associated companies, companies are excluded if they are dormant, i.e. did not carry on any trade or business during the accounting period. HMRC say that a company which receives any income, including that from dividends or interest, may not be considered to be dormant. This is difficult to justify in the light of Jowett v O’Neill and Brennan Construction in which the High Court specifically held that the receipt of bank deposit interest was not the carrying on of a trade or business.