Fantasy work of the tax system the devil is in the detail

Harry Potter actor Rupert Grint is used to the magical power of words. But even he must have been surprised to find that a couple of words can make a difference to his tax liability of, if reports are to be believed, over £1m.  

In a decision just released by the first tier tribunal, Mr Grint and his advisors were tripped up by the meaning of two words – and believe it or not those words were 'is' and 'accounts'.  

The background is that Mr Grint wanted to move as much of his income as possible into the year 2009/10 because that was the last year of the 40 per cent marginal rate before the 50 per cent rate kicked in for 2010/11. It is important to acknowledge, as HMRC did, that Mr Grint was not engaged in tax avoidance.  The whole argument was about the way that the tax rules operate when a self-employed taxpayer changes the date to which accounts are drawn up.

Several different sets of financial information (to use a neutral term) were prepared by Mr Grint’s accountants for various purposes and to different dates.  In the end the tribunal had to decide which of these was actually a set of 'accounts', which involved the judge looking at  what the word 'accounts' actually means – which she did in more detail than anybody would ever believe is possible.  The set she decided on didn’t give the result that Mr Grint wanted, with the result that more of his income became taxable in 2010/11 at 50 per cent. 

As for the word 'is'; this affected time limits for submitting claims to change an account date.  In the end the judge couldn’t decide what 'is' actually meant and therefore sidestepped the problem.

The fantasy world of Harry Potter has nothing on the fantasy work of the tax system, where it takes a tribunal more than 200 paragraphs to decide what is meant by the words 'is' and 'accounts'.  The decision, if not appealed, will be very expensive for Mr Grint.