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Impractical Magic

Published:

​It is entirely possible that this tax snippet may only be interesting to insomniacs and anoraks but I liked it so read into that what you will.

Rupert Grint (Ron Weasley of Harry Potter fame) decided, or rather, his accountant decided to organise his accounts so that a chunk of profits fell into a tax year where the highest rate was 40% rather than the later year when it was 50%.

Who can blame them? There is nothing wrong with that even in today’s climate of ‘tax puritanism’.

They did this by extending the accounts from a year end of 31st July to the following 31st March. This meant that he paid tax on 20 month’s worth of profit but over the 2 years he saved £x at 10%. I don’t know the sums involved but 10% of £500k is worth having.

HMRC managed to overturn this simply because the accountant prepared one set of accounts for 20 months rather than 2 sets: one of 12 months and one of 8. There is a rule which says that you cannot have a set of accounts for longer than 18months.

The result being that the profits were moved into the later tax year and he paid 50% tax on them rather than 40%, plus interest and probably penalties.

It’s interesting that something so apparently trivial ie the sensible move to only complete one set of accounts could have tripped them up. This result may well be challenged but often it’s not worth the costs and so stupidity prevails.