Car scrapping scheme

I have just been reading an outline of how it will work. What a brilliant idea!

The government are organising a £2,000 subsidy to the few people who have owned a car for more than a year and want to scrap it in favour of a brand new car. When I say organising, it will only cost the government £1,000 - the rest comes from the manufacturer (actually it is less than this because he gets some VAT relief).

What is really clever is the tax rules though. If you are in business and it is a business vehicle you are selling, then the £2,000 is NOT sale proceeds. The car is scrapped, so you get nothing for it. Instead the £2,000 is a discount off the price of the new car.

With the new capital allowance rules, this could mean that if you are going for a really green car, the 100% allowances you get will be on the lower value (the price of the new car less £2,000). And the new "pooling" rules for cars means that you do not get the balance of any relief when you sell the old one - you only get a writing down allowance on the balance so that it will take about 10 years to get 90% of the the balance.

Did Gordon come up with this, or is this one of the reasons Alistair has kept his job at number 11?

Help, but not as we know it

The writer has always been wary about tax helplines operated by HMRC since an experience many years ago when it took a year for the HMCE (as it then was) to agree that the advice given on the helpline was wrong and that compensation should be paid.

In the light of the most recent ruling in the Corktech case, we may have been lucky to receive the compensation.

The circumstances are simple - a company telephoned the VAT helpline to check what it should do about something. The advice it relied on was wrong and it ended up owing £300,000 in VAT. There was a difference of opinion over the advice given - the notes made by the helpline at the time and the taxpayers notes were different. But that did not make any difference! The tribunal ruled:

"The [helpline] was only held out as a source of "general advice", rather than as a source of binding rulings on the proper tax treatment of specific transactions," such that the unfortunate taxpayer "could not reasonably have thought that [HMRC] had given [him] a fully considered and binding ruling in [his] favour."

What this means is that, even if the helpline get it wrong, it is you, the taxpayer, who will end up paying for the mistake.

What should you do about this? Firstly, don't telephone the helpline, because you can only rely on them when you know their answer is right, and if you know the answer, you don't need to ask!

Any other reasons for paying for advice instead of getting it free (Apart from the old saying that you get what you pay for)? The helplines will only answer the question you put - an adviser can ask you whether you have thought of doing it some other way.

Why will the helpline get it wrong? The helplines are based on HMRC publications and databases which are often interpretations of the law, rather than the law itself. And whatever anyone else may say, tax is complicated - if you get an inexperienced adviser on the telephone, they may not even realise there is a problem.

I could go on, but that is probably enough..