For contractors, it's all tax deductible! Oh no it’s not...

Weighing up whether an item of expenditure is – or is not – tax deductible is a familiar task to the financially-shrewd contractor. But with every penny still threatening to count in 2012 – to the taxman as well, even the most seasoned business-owner should be doubly sure of which items will be eligible for recouping, and when. So, writes Emily Coltman, of accountancy provider Free Agent, with our favourite pantomime protagonists leaving the stage until next season, check whether your advice on the status of their departing gifts, and tax dilemmas, would be right or risible!

Puss in Boots

Puss’s master bought him the famous boots.

But would the cost of the boots be tax-deductible?

Only if Puss was a self-employed entertainer (which he wasn’t) or the boots counted as either protective clothing or a uniform.  If they were a uniform or protective clothing, then Puss’s master would have to report them on form P11D assuming the cat’s salary (!) was over £8,500 a year, but there would be no tax to pay.

But remember, as the boots wouldn’t have been protective clothing or a uniform, Puss’s master would also have to pay Class 1A National Insurance on the cost or value of the boots.

Aladdin

The genie gave Aladdin some very valuable gifts.

Because those gifts were all to one person; would have cost more than £50 in a year, and didn’t carry a conspicuous advertisement (from, say, the firm of Genies Inc!) the genie would not have been able to claim tax relief on the cost of those gifts.

Jack and the Beanstalk

Jack traded a cow for a pile of magic beans.

That’s a classic barter transaction – no money involved.

So if Jack, and the old man who gave him the magic beans, were registered for VAT, they would have had to work out the monetary value of the cow and the magic beans, and pay VAT to HMRC on those values.

And whether or not they were registered for VAT, the monetary values would also be listed in their two sets of accounts as income – the cow’s value in Jack’s accounts, and the beans’ value in the old man’s.

How to work out the monetary value of a pile of magic beans would be beyond most of us.  I certainly wouldn’t know where to start.

The Pied Piper of Hamelin

The Pied Piper was a pest controller by profession, but he ended up taking care of rather a lot of children.

If an employer helps an employee pay for childcare, this will not be a taxable benefit provided the childcare is given by a registered or approved provide [1].

I’m pretty sure that the Pied Piper wasn’t a registered or approved provider of childcare. So for those of the children’s parents who were employed by the town council, that childcare would cost them tax and National Insurance.

[1] There are some conditions around which children are eligible.

Robin Hood

Robin Hood (and his Merry Men!) cost the Sheriff of Nottingham a lot of money.

How would the Sheriff have recorded that in Nottingham Castle’s accounts?

It would have probably cost him his head if he’d attempted to just leave the income out of the records. In those days, the authority (the king) didn’t tend to let you off with a fine. So he would have had to record the lost money as a cost in his accounts, similar to how he would record a bad debt.

If the Sheriff could have remembered where the money that had been stolen had come from, then it would have been a specific cost, so at least he wouldn’t have had to pay tax on that lost income.

However if he’d lost so much money that he couldn’t account for where it came from, then that’s a general provision for stolen money. Moreover, there’s no tax relief on general provisions – so to add insult to injury, he’d still have to pay tax on that income.