The word 'absurd'. Other similar words include 'illogical', 'ludicrous', 'illogical', 'incongruous'.
All are words which can be thrown at various parts of the tax law. The tax profession likes to call them "tax nothings", but The Smart Frog likes to call them "tax something-for-nothings".
Take the case of a man in business. He is VAT registered, using the much-heralded (by HMRC, at least) Flat Rate Scheme. He also receives rental income from a property in which he once lived (he doesn't make any money on this because the rents are outweighed by his mortgage interest).
Generally, VAT is not chargeable on rents received on a property because it is VAT-exempt income (unless there has been an 'option to tax' election - ignored for today's purposes). However, where a VAT registered business is under common ownership of a rented property, and the business is under the Flat Rate Scheme, then the rents received on the rented property also have to come into Flat Rate Scheme calculations. This means that, effectively, VAT has to be paid over to the VAT-man on the rental income (before expenses). Let you be reminded - the property is VAT exempt and no VAT has been charged on the rents, so the poor business-man has to find the VAT out of his own pocket.
So, what we have here is this. A property which is within the income tax net but pays no income tax because it is not making profits, but which is VAT-exempt yet the owner has to pay VAT over to the VAT-man on the rents received.
If that isn't something-for-nothing for the taxman then The Smart Frog doesn't know what is. In short, it's completely and utterly....absurd.
Posts
