My definition of "tax nothings" is:-
"an item of expenditure, or a loss, which is incurred in connection with a taxable source of income or gains, but which is not fully tax-deductible when calculating the tax liability relating to that source".
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The purpose of this paper is to bring together in a logical format the various nothings which I have been able to identify as at 12 May 1997. The paper deals with income tax, corporation tax and tax on chargeable gains. It does not deal with trusts. Nor does it deal with certain specialised areas such as oil companies and insurance companies.
Many of these nothings have already received an airing in the various representations made to successive Chancellors over the years by the CIOT and other professional bodies and industry groupings.
It is hoped that the paper will serve three important purposes:-
(i) It will constitute an up-to-date base document which can be used and referred to in connection with future representations to the Inland Revenue.
(ii) It will serve as a reference document for tax practitioners to consult when giving advice connected with potential nothings. To make the paper more helpful in this respect, I have tried to include - where appropriate - advice on how transactions can be structured in order to avoid treatment as nothings. Also, if a practitioner faces an argument from the Revenue that a particular item is a nothing, he can turn to the relevant item in this paper and may find confirmation that the Inspector is correct or may find advice on how to rebut the Revenue's contentions.
(iii) It will help to open a debate - involving the tax profession and the Revenue - on how to eliminate (or mitigate) the problem of nothings. I consider that this is an extremely important issue at a time when taxpayers are being asked to self-assess and when the call for tax simplification has become more vocal than ever before. It has been estimated that tax compliance costs our nation around 1.5% of gross domestic product. I believe that it should be possible to reduce this cost, and at the same time to make the tax system fairer and more comprehensible. The present piecemeal approach to dealing with nothings is unsatisfactory: a more radical approach is needed.
I am very grateful to the various people who have sent me details of nothings for inclusion in the paper. These contributions have come from individuals, companies, professional bodies and trade associations. However, it is inevitable that a number of nothings will have been overlooked, in spite of diligent research on my part. Also, it is very likely that new nothings will emerge in due course as a result of future legislation, case law and Revenue interpretations.
Like many other areas of tax, nothings are in a constant state of evolution. Indeed, it may be more accurate to liken them to amoebas, having no fixed shape and continually pushing out in different directions. For this reason, the paper is likely to become out-of-date fairly quickly. However, nothing would please me more than if it were to become completely obsolete due to the total abolition of nothings!
This paper reflects the law, etc. as at 12 May 1997, although reference is made (where appropriate) to proposed changes in the law and practice.
Daron Gunson FCA, FTII
26 May 1997
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