Dear All,

I am delighted to enclose our latest Newsletter. I hope there is something of interest for everyone.

As most of you probably know, we are a training office for the Institute of Chartered Accountants and the Association of Chartered Certified Accountants. We have been educating students for the last 12 years and I fervently believe that it is one of the best things that we have done. We have a collection of terrific students at the moment, some of whom have achieved outstanding exam results. We try to teach them the virtues of common sense, sound judgement and above all good manners - as an old lady once said to me „Andrew, you don't need a suitcase to carry round your manners!”

We are indebted to all our staff for their endeavours - here is an up to date list of who we are:-

(Do have a look at our websites www.andrew-hamilton.co.uk and www.hamilton-financial.co.uk for a better idea of exactly who does what.)

Our financial services company goes from strength to strength and if you require any help on the financial services front, do telephone either Victoria Mann or myself - please note that we now have a very good investment advice arrangement with our friends, Gillespie MacAndrew

The City of Edinburgh Council, in its wisdom, has extended control zoned parking to Dean Park Mews. The result is not nearly as bad as we had feared. Please telephone Rachel or Kelly in advance of your visit and they will tell you where to park - we have a couple of garages at 37 and 36 but in the event that these are taken, there is metered parking close by

With very best wishes.

Yours sincerely,

Andrew Hamilton FCA CTA Cert PFS

Many of you will have followed this case involving a husband and wife business which was incorporated to save National Insurance and tax. The House of Lords found in favour of the Jones, rejecting HMRC's appeal. The House of Lords ruled that:-

•The Jones were creating an arrangement in the nature of a settlement when they subscribed for 1 share each and set up their company, Arctic Systems Ltd, but

•The exemption for gifts between spouses also applied and dividends paid to Mrs Jones were therefore not income arising under a settlement.

It will be interesting to see what the new Chancellor of the Exchequer does in the wake of this case. Speculation has included whether or not the Chancellor will reintroduce investment income surcharge on dividends paid or whether dividends will become liable to National Insurance.

HMRC reckons that 1 million Britons have evaded tax by not declaring income from assets held abroad. The deadline for the amnesty was 22nd June before which taxpayers „owning up” would face a penalty of 10% of tax „lost”. Now they face a penalty of 30% of tax „lost” for undeclared overseas income.

Following recent rulings, offshore branches of UK banks are now obliged to disclose information to HMRC on customers with UK addresses. HMRC feels confident of raising a lot of extra tax - up to £5bn if you believe some of the recent press reports.

If you have forgotten to declare overseas income - for example, interest on an overseas bank account or income from the rent of an overseas property - please get in touch with us immediately.

That as part of the merger process between HM Customs & Excise and HM Inland Revenue, HM Revenue Customs (HMRC) is seeking powers to allow officers to visit your office (including your house if you work from home) without a warrant and without notice?

•That under the new pension arrangements, it is quite possible - and perfectly legitimate - to make a pension contribution in 2007/2008 of £460,000 instead of £225,000?

•That your Principal Private Residence can be overseas?

•That you may be able to claim PPR status for a property in which you live for only a matter of months?

•That if you were to employ a builder to convert one residence into a number of smaller residences (all having their own entrances and theoretically available for separate sale) the building work would attract VAT at only 5%?

•That you could be liable for the actions of your office cleaner if he/she is negligent but has neither employee status nor insurance? (Check your cleaner's insurance policy or alternatively your own....we know of a cleaner who left a tap on and caused over £100,000 of damage and untold chaos).

•That families with children may qualify for Child Tax Credit, even where the family income is £50,000 and more? Tax Credits can be particularly beneficial if you are incurring regular childcare costs from a registered childminder. The following URL has a useful calculator to give you an estimate of your eligibility - http://www.entitledto.co.uk.

•That your family may suffer if you do not organise a Power of Attorney? We recommend that everybody takes steps to ensure that their affairs can be assumed by another person in the event of an unforeseen mental incapacity arising from accident or illness. The current Enduring/Continuing (different technology between England and Scotland) Powers of Attorney are straight forward to produce and can be kept in a safe place just in case they are ever needed. In England the setting-up rules are changing in October and many lawyers are recommending that people should set up an 'old style' Power of Attorney now.

Two popular tax efficient savings vehicles are Self Invested Pension Plans (SIPPs) and Individual Savings Accounts (ISAs). A SIPP is currently a fashionable means of providing for your own Personal Pension; an ISA is a vehicle with certain tax privileges. Both products allow the underlying investments to accrue free of tax. Here, we compare and contrast their tax benefits:-

The advantages of SIPPs
•You can invest up to £225,000 per tax year in a SIPP, but only £7,000 in an ISA.

•Income Tax relief is given at your highest rate of tax on premiums paid into a SIPP, subject to maximum annual limit - you do not get income tax relief on ISA premiums.

•Wider range of investments, e.g. AIM stocks and commercial properties in SIPPs.

•Permanence of investment, i.e. not able to draw money out as the whim takes you.

The advantages of ISAs
•Able to draw tax free money at any time, either as income or capital.

•Able to have the money when needed in full unlike SIPPS when only 25% cash can be taken out tax free over the age of 55, the rest to be used to purchase income/annuities.

Overall Conclusion
Providing you choose good investment managers, both SIPPs and ISAs should be excellent tax efficient long term investments.

This became law last year and is going to be implemented in pieces between now and October 2008. One major piece of legislation already enacted is that every company must ensure that its electronic communications (e.g. emails and its website) contain information about the company's status as a company, its registered number, its registered address and its place of registration (either 'Scotland', 'England and Wales' or (by concession) 'Wales', but not 'England').

In a little publicised announcement before the budget, the turnover threshold for cash accounting for VAT purposes was raised from £660,000 to £1,350,000 (if only the same rate of increase had been applied to the IHT threshold...ed!).

This now gives a number of fairly sizeable businesses the opportunity to take advantage of cash accounting for their VAT liabilities. The main advantage with cash accounting is that, because you don't pay your output VAT (applicable to sales) until you receive payment, you avoid all the VAT problems associated with bad debts. You will also gain a oneoff cash flow advantage to the value of the VAT on your trade debtors less trade creditors, but do be wary during the changeover period that you don't double count VAT.

It is simple to do. There is no need to register with HMRC. Just start applying cash accounting when you start your new VAT period. If you need any guidance do contact us.

With the current 22% basic rate of income tax, a gift of £100 to a charity will, after gift aid, become £128 in the hands of the charity.

From 6th April 2008, however, when the basic rate of income tax is reduced to 20%, the same £100 will only raise £125 after gift aid, i.e. £3 less than under the current regime. This will impact adversely on all charities. So, from 2008, you might like to consider increasing your charitable donations by 3% to make up for the shortfall. Your generosity will almost be the same as the benefit that you will achieve from the reduced rate of tax - so you should be no worse off as a result.

Where a business pays for petrol or diesel and some of this fuel is used for private motoring, the business has three options:
(i) It can claim all input VAT and apply the fuel scale charge;
(ii) It can keep a detailed mileage record and claim the input tax just on the fuel used for business motoring; or
(iii) It can claim no input tax at all.

Until 30th April this year, there were two scale charges for diesel cars, one for 2,000cc or less and one for more than 2,000cc. There were three scale charges for petrol cars, one for 1,400cc or less, one for 1,401 to 2,000cc and one for more than 2,000cc.

With effect from 1st May, there are 21 scale charges! These are calculated on the basis of carbon dioxide emissions and take no account of cubic capacity or fuel type.

The scale charges for a VAT quarter vary from £27.11 for the least polluting vehicle to £63.45 for the most noxious. The effect of these new scale charges means that to make it worthwhile for a business to claim VAT on fuel, the VAT inclusive cost of the private fuel would need to be at least £182 per quarter at the lower end of the scale and £426 at the top end.

For example, the private use fuel bill for a diesel SAAB which does circa 6,000 private miles per annum at an average of 30 miles to the gallon (at a cost of £1 per litre of diesel) is £222 per quarter on which only £33.00 of input VAT can be reclaimed. The VAT fuel scale charge is £41.70 per quarter; so in this example it is cheaper not to claim input tax on car fuel and much simpler!

Strange as it may seem there is no definition of „residency” in the Taxes Act. For many years, taxpayers have relied on Booklet IR20 which sets out the UK residency test; in essence you remain UK resident if you leave the UK, but continue to return to the UK for 90 days or more each tax year; in IR20, the 90 day test (as it is known) states that days of arrival and departure can be ignored in the 90 day test. A recent case, however, may have significant ramifications for large sections of the ex-pat community and international workers.

A Mr Gaines-Cooper left the UK in 1975 and became resident in the Seychelles. He married a local girl and created, so he thought, a main residence there. He had many and varied business dealings around the world including the UK. He owned a house here, kept a collection of Rolls Royces and put his son down for Eton. He came back to the UK for Ascot and pheasant shooting. His wife chose to live in the UK from 1977 and Mr Gaines-Cooper spent the maximum time allowed visiting his family in the UK.

However, HMRC assessed him as being resident in the UK during the ten years 1992 to 2004. They claimed that he had never really become non-resident in the first place; in doing so, they counted days of arrival and departure as part of the 90 day test, thereby ignoring the IR20 guidelines.

The repercussions of this decision are considerable and clients relying on the IR20 guideline should contact us sooner rather than later to ensure that they minimise the risk of a large back-assessment of UK tax.

SOCIALISM: You have 2 cows, and you give one to your neighbour.

COMMUNISM: You have 2 cows. The state takes both and gives you some milk.

FASCISM: You have 2 cows. The state takes both and sells you some milk.

NAZISM: You have 2 cows. The state takes both and shoots you.

TRADITIONAL CAPITALISM: You have two cows. You sell one and buy a bull. Your herd multiplies, and the economy grows. You sell them and retire on the income.

SURREALISM: You have two giraffes. The government requires you to take harmonica lessons.

AN AMERICAN CORPORATION: You have two cows. You sell one, and force the other to produce the milk of four cows. Later, you hire a consultant to analyse why the cow has dropped dead.

ENRON VENTURE CAPITALISM: You have two cows. You sell three of them to your public-listed company, using letters of credit opened by your brother-in-law at the bank, then execute a debt/equity swap with an associated general offer so that you get all four cows back, with a tax exemption for five cows. The milk rights of the six cows are transferred via an intermediary to a Cayman Island company secretly owned by the majority shareholder who sells the rights to all seven cows back to your listed company.
The annual report says the company owns eight cows, with an option on one more. Sell one cow to buy a new president of the United States, leaving you with nine cows. No balance sheet provided with the release. The public buys your bull.

A FRENCH CORPORATION: You have two cows. You go on strike, organise a riot and block the roads, because you want three cows.

A JAPANESE CORPORATION: You have two cows. You redesign them so they are one-tenth the size of an ordinary cow and produce twenty times the milk. You then create a clever cow cartoon image called ' Cowkimon ' and market it worldwide.

A GERMAN CORPORATION: You have two cows. You reengineer them so they live for 100 years, eat once a month, and milk themselves.

AN ITALIAN CORPORATION: You have two cows, but you do not know where they are. You decide to have lunch.

A RUSSIAN CORPORATION: You have two cows. You count them and learn you have five cows. You count them again and learn you have forty-two cows. You count them again and learn you have two cows. You stop counting cows because you are sobering up and open another bottle of vodka.

A SWISS CORPORATION: You have five thousand cows. None of them belong to you. You charge the owners for storing them.

AN INDIAN CORPORATION: You have two cows. You worship them.

A BRITISH CORPORATION: You have two cows. Both are mad.

IRAQI CORPORATION: Everyone thinks you have lots of cows. You tell them that you have none. No-one believes you, so they bomb you from a great height and invade your country. You still have no cows, but at least now you are part of a democracy.

WELSH CORPORATION: You have two cows. The one on the left looks very attractive.

Tony Blair was asked by Gordon Brown for 10p to phone a friend, „Of course” replied our former Prime Minister, „but why not take 20p and ring them all?”

An 108 year old British woman has been told by the Eastern and Coastal Kent Primary Care Trust that she must wait 18 months for a new hearing aid .......