Tax and Debt: The Odd Couple? But – Is it the same for little and large?

Tax and Debt. A number of news items are worth noting this week – above the general “noise” that pervades at the moment.

There is a reported resurgence of speculative debt – Payments in Kind Notes or PIKs as they are known – which became popular up until the crisis in 2007, after which point investors avoided such speculative structures – according to the Financial Times (27 Feb 2012). PIKs were used as a flexible way of raising funds to partly finance private equity acquisitions and the like. Some see the return of PIKs as a signal we are moving back to the “bad old days”….

Today, we see Barclays (reportedly) caught out by HMRC – caught with its hand in the tax avoidance cookie jar – attempting to avoid millions in tax by using “special processes” and debt buy back structures to side step the tax bill.
HMRC have reportedly already successfully clawed back £500m in unpaid tax from an “unnamed company” (thought to be Barclays) by using retrospective legislative measures (according to today’s The Times).

At the same time the “other half” – the UK general public – are reportedly paying up to 60% duty and VAT on petrol and 58% on diesel. These figures represent what are arguably the highest tax/duty rates in the European Union, according to the Daily Mail.

For small businesses and the self employed, whilst the cost of fuel can be an allowable expense, VATable expenditure is better for the VAT registered business – but claiming back the VAT on fuel can be a tricky road to follow – some instead opt for a flat claim while others don’t claim the fuel VAT at all.
For personal expenditure, there is of course, no reprieve. The whole cost is – well – the whole cost.

But it isn’t all “them and us”.

Whilst this (tax and debt) may look like an “odd couple”, we have seen a similar concept touted as a way of reducing tax for the wider populus in the form of “offset” mortgages – mortgage interest offset being by money on deposit interest – so the concept is not really new – just a much larger scale and put together in a slightly different way.

The majority don’t relish having to pay high fuel costs but don’t have a choice anyway. So not much scope for tax saving here unless your business model makes it worthwhile.

The concept of restructuring a mortgage in order to reduce taxable savings income is not appropriate for everyone and in any case professional advice should be sought before making (or not making) a decision regarding mortgage finance.

Please note that you should THINK CAREFULLY BEFORE SECURING OTHER DEBTS AGAINST YOUR HOME. YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.

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