Archive March 2019

VAT Question of the Week: Charity Fundraising

Q- Over the last few years, my client and a couple of his friends have run a small local beer and cider festival; any profits they make are given to local charities. They sell a few tickets in advance and have sponsorship/advertising income, but most sales occur on the day of the event. In the last few years, they have been below the VAT registration threshold, but with the number of people attending increasing year on year and the wonderful summer we had in 2018, they did exceed the VAT registration threshold by £800. As all the profits are donated to charity, can the client benefit from the charity fundraising exemption?

A- Charities and some other non- profit making organisations, such as certain membership, sporting, and cultural organisations ** are able to benefit from the exemption for fundraising activities. The exemption covers supplies of goods or services made by a charity or Read More

Tax Question of the Week: Deemed Domicile & Automatic Remittance

Q- My client is a long-term resident of the UK for tax purposes. However, she is non-domiciled and has been using the remittance basis for her foreign income as it is below £2,000. As she will now have been here for 15 of the previous 20 tax years, will she be caught by the Deemed Domicile rules?

A- The short answer is no, she will not.

The Deemed Domicile rules only apply to certain claims such as people claiming the remittance basis as UK resident, non-domiciles with income or gains over £2,000.

The Deemed Domicile rules are contained in s835BA of the Income Tax Act 2007. In brief, they treat people who meet either of the conditions below as domiciled in the UK for tax purposes:

Condition A Read More

VAT Question of the Week: Supplies Spanning EDR

Q- My client is a planning consultant. He had a contract which began prior to his effective date of VAT registration and continued after. The agreement was for stage payments to be made. I understand that at least one invoice was issued prior to registration, but payment was not received until after he was registered. Does he have to account for VAT on that payment?

A- Where there is a supply of services in the course of construction where the contract is for stage payments, then Regulation 93 (VAT regulations 1995, SI 1995/2518) applies to determine the time of supply.  VATTOS9110 https://www.gov.uk/hmrc-internal-manuals/vat-time-of-supply/vattos9110 confirms that this regulation governing the time of supply applies to professional services such as architects, surveyors, consultants as well as the more obvious construction services. Read More

HR Expert: Dogs in Work

Q- My client has been asked by a couple of employees whether they can bring their dogs to work. What things do they need to consider?

A- Whilst it may not necessarily be widespread, there is a growing trend of businesses allowing employees to bring their dogs to work with them. Although your client is under no obligation to agree to this themselves, there are several points that are worth considering before they make a decision. Read More

Tax Question of the Week: Unlawful Dividends

Q- My corporate client has paid interim dividends but did not have sufficient distributable reserves. What are the tax implications?

A- To correctly tax the amounts paid we must first consult company law and correctly account for the amounts paid.

Distributions made in excess of distributable reserves are not lawful as they are not compliant with Part 23 of Companies Act 2006. Section 847(2) of Companies Act 2006 governs the consequences of unlawful distributions. Where the participator “knows or has reasonable grounds for believing” all or part of the distribution was unlawful they are liable to repay the unlawful amount to the company. Read More

HR Expert: Sickness & Holidays

Q- My client has informed me that they have an ‘unwritten policy’ which lets staff who are unable to attend work due to sickness book this as annual leave so they don’t miss out on full pay. Is that OK?

A- Your client is not alone in encouraging this practice as many employers will allow their staff to do the same, particularly in the absence of any company sick pay. Although this is often thought of as a mutually beneficial arrangement, your client should consider where this may create issues further down the line. Read More

Tax Question of the Week: Irrecoverable Loans

Q- My client has made a directors loan to his personal company (he is the majority shareholder) which now cannot be repaid. Is there a loss for CGT and if so, is it a ‘clogged loss?’

A- There are a number of issues to be determined in this situation:

  • Is there an allowable loss at all?
  • Is it a connected party transaction
  • Has there been a disposal?
  • Is any allowable loss ‘clogged’?

Read More

VAT Question of the Week: TOGC Property Rental Business

Q- Our client is looking to purchase the freehold of an industrial estate made up of six commercial units for £1.8m. They will set up a new limited company to buy the site. Four of the units are tenanted and two are empty. The current tenants have considerable time left on their leases and after the sale, they will remain in place.  The vendor is VAT registered as his turnover from the properties exceeds £85,000, and he opted to tax to recover the VAT on the purchase 12 years ago. A deposit is payable to the vendor in 2 weeks’ time and my client’s solicitor is asking whether the transfer of going concern (TOGC) provisions have been met so the sale is outside the scope of VAT. Will this still be a TOGC as the site is only partially let?

A- The TOGC provisions can still apply where a site is purchased and some units are tenanted and some temporarily vacant as long as the units are sold as a portfolio of properties that have been used together as a rental business.  This is confirmed in HMRC’s manual VTOGC7050.

Where the conditions are met, TOGC rules are compulsory; the parties cannot choose not to apply them. Where we have the sale and purchase of a property rental business and the new owner will continue renting to the current tenants, this will be a TOGC provided they meet the conditions below. Read More

Tax Question of the Week: CGT PPR Changes

Q- I can recall that in the course of the 2018 Budget, changes were announced about the rules for some of the ancillary reliefs on disposals of private residences. I can see no new Legislation on these points. What is the current position please?

A- You will be referring to the proposed reduction of the exemption for the final period of ownership from 18 to 9 months and the restriction of relief for letting to circumstances where the owner of the property is in shared occupancy with the tenant.

The announcement was that the changes would apply from 6th April 2020.

The announcement promised consultation on these changes and technical aspects. To date, there is no consultancy, so the announcement, at best, is a warning shot that there may be some changes. Read More

VAT Question of the Week: Adjustments on Repossessed Goods

Q- My client is a VAT registered builder and purchased a van for his business on hire purchase (HP) two years ago – because it was anticipated that title would pass in the future once all the payments had been made, it was treated as a supply of goods, and my client reclaimed all of the input tax up front. He is now struggling to meet the monthly repayments and the finance company is in the process of repossessing the vehicle. Does my client have to account for any VAT when the vehicle is repossessed, or are there any adjustments to the input tax that was claimed?

A- Firstly, it is important to identify the type of credit agreement that is in place. In your client’s circumstances, under an HP agreement, where it is anticipated that title will pass in the future, this is treated as a supply of goods at the outset, thus meaning VAT is charged and recoverable at the start of the agreement.

However, lease agreements where title will not pass, or agreements where there is a large balloon payment at the end that make it highly unlikely that title will pass, are classed as services, and VAT is charged on the monthly payments, not at the outset. It is often worthwhile checking how the supplier/finance company is treating the supply. Read More

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