Poll on attitudes to tax

[king_pellinor]

"Taxation" magazine is doing a survey to see if the public's attitude to tax avoidance/evasion/planning is what the Government thinks it is.  Can I ask people to have a quick go at it, to inform the debate a bit?  It's all anonymous.

http://bit.ly/TaxHowFar

Comments

[king-pellinor.livejournal.com]

If it's a hobby, it's not taxable income. That also means it's not a taxable loss - actually, that's really the main motive for excluding hobbies from tax: otherwise people would have all sorts of loss-making micro-businesses.

Tax losses are a benefit, but they're almost always a pyrrhic one. Generally, to get a pound of tax loss you need to lose a pound. Spending a pound to get 50p back in tax isn't good wealth planning.

There are some areas where you can be credited with more loss than you economically made, but they're very rare. They tend to come either from very arcane transactions, or very arcane tax law. Arcane transactions tend to be struck down in the courts these days (a typical one would be "I borrowed a load of money, spent it, got nothing back, so I want my tax losses please. Oh, by the way, the person I borrowed the money from doesn't want it back, isn't that lucky", but the courts tend to then say "so it wasn't your money, then?"), and arcane tax law is the Treasury's fault, to be honest. I think I posted up about a case a few years ago where the judge pointed out that the law requires that you basically make something up for tax purposes that is entiely artificial, and if that gives a stupid result then it's Parliament's fault.

So generally, no, people aren't be doing that. Or at least, aren't succeeding.

[philmophlegm.livejournal.com]

Would that rule out say a couple where he works and is a higher-rate taxpayer, but she doesn't and doesn't have much in the way of taxable income and who already have a smallholding / hobby farm type thing because it's fun rather than for any financial reason?

Could the hobby farm actually be considered as a loss-making enterprise owned by the husband (perhaps paying the wife enough to make use of her personal allowance) and therefore losing enough money to reduce his higher-rate income tax liability?

Or would HMRC just look at this arrangement and see the farm for what it is - a hobby, not a business? What happens if you swap the hobby farm for something that is more obviously a business, something that surely nobody in their right mind would do for fun (dunny collecting for example)?

[king-pellinor.livejournal.com]

The basic test is "is this done with a view to a profit?"

If it's a loss-making enterprise, and always will be, then it's not done with a view to a profit and so the losses won't be allowable. That covers dunny-collecting, too - for the losses to be allowable, you'd have to be expecting to make a profit out of the activity.

With farming there's an extra rule that if you consistently make losses for five years then it's deemed to be not-for-profit. Which seems a bit harsh in the current climate, but there you go - there are a lot of hobby farmers out there, and green wellies do not a bona fide business make.

[philmophlegm.livejournal.com]

Ah-ha. That seems eminently sensible.

[wellinghall.livejournal.com]

I read an article in one of my father's shooting magazines some years ago, about the tax situation for pickers-up. You couldn't live on the income from this, but you could get a moderate amount if you were, say, retired from your full-time job, and doing a lot of picking-up during the season.

The article reminded people to offset their travel expenses, dog costs (including food, vet bills and the like) &c. As I was reading it, I thought that the article was being rather extreme in its recommendations, as you don't have a dog just to go picking-up.

But I can no longer remember just what it said.