Tax Question of the Week: Disposals to Connected Person

Q- A client has recently sold an asset, for what he believes to be the market value, to his sister-in-law. A capital loss has arisen and he would like to know how he could use this loss.

A- The first thing to be aware of when making a disposal of an asset to a connected person is that TCGA1992 s18 deems it to be a transaction made for a consideration equal to open market value, regardless of the actual proceeds.

The question then is who is a connected person and which relatives are included? The definition of this term is found within TCG1992 s286 – they are certain relatives, trustees, partners, and companies. As your client’s disposal was to his sister-in-law, we shall concentrate

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VAT Question of the Week: VAT – Too Late to Claim?

Q- My client has been approached by a builder, who carried out repair work to the client’s factory some years ago. The builder was late registering for VAT and is now looking to issue VAT only invoices to my client for the supplies in question. I have several concerns: is the supplier liable to account for the VAT if the supplies were made more than 4 years ago? Is my client obliged to pay and if so can he now recover the VAT given that the original invoices were dated more than 4 years ago?

A- The supplier will be liable to account for VAT on supplies made since the effective date of registration. HMRC will treat the income as VAT inclusive, but the supplier has the option of issuing VAT only invoices if the customers agree to pay the extra, usually on the basis they can recover it. Read More

Tax Question of the Week: Property Swap

Q- Jack and Jill jointly own two investment properties and wish to swap their interests so that they each have ownership of one of the properties. As tenants in common they currently equally own Cornfield with a market value of £210,000 and the original cost of £50,000 and Wheatfield with a market value of £200,000 and the original cost of £49,000. Jack is to have Cornfield and Jill is to have Wheatfield. What are the CGT and SDLT implications?

A- For CGT there is a form of roll-over relief on the disposal of joint interests in land in s 248A TCGA 1992 where conditions A to E in that section is satisfied. Condition A is that there is a joint holding of land or separate holdings in land; condition B is that there is a disposal of an interest to one or more co-owners; condition C is that the consideration includes an interest in a joint holding in land; condition D is that in consequence of the disposals the co-owners become sole-owners and condition E is that the acquired interest is not an interest in excluded land. Read More

VAT Question of the Week: A Building for a Charity – VAT or Not?

Q. My client owns and rents out commercial properties; mainly office blocks. A local charity has asked to take a lease on one of his buildings but is saying that VAT should not be charged on the premium or rent. My client has opted to tax all of his properties because he does not want to be partly exempt and, more importantly, this particular building is within the capital goods scheme. I have forewarned my client that if he were to make exempt supplies during the term of the scheme he may have to repay some of the VAT he claimed on the building and, understandably, he isn’t happy about that. Does he have any choice in this matter? 

A. To be fair to both parties, if the amount of VAT at stake for your client is relatively small it may be possible to factor this in when negotiating the lease. However, whether a property owner facing a significant VAT loss has any scope to refuse to disapply his option to tax depends on how the charity intends to use the property. Read More

Tax Question of the Week: Class 2 National Insurance Changes

Q- I have several self-employed clients all of which are subject to the Class 2 national insurance rules and currently pay contributions. Class 2 was about to be abolished but I have heard that this has now changed. Is that correct?

A. Class 2 national insurance contributions are payable by the self-employed. Contributions are payable at a flat weekly rate and entitle the contributor to short-term contributions based employment and support allowance, maternity allowance, widowed parent’s allowance, state pension, and bereavement benefits. Read More

VAT Question of the Week: Working on Goods From Outside the EU

Q- My client is a VAT registered business operating as a garage. An individual based in Guernsey is sending his car to the UK for a service, and once the service is completed, my client will send the car back to the customer. Will my client be required to charge VAT?

Q- The first thing to establish here is the place of supply, and to do that your client has to consider the nature of the service being provided, and whether his customer is a business (B-B) or an individual (B-C).  The service here is that of working on someone else’s goods and you have said that the customer is an individual. The general (or default) rules for B-B supplies and B-C supplies are different. If this had been a B-B supply, it would have fallen under the general place of supply rule, being where the business customer belongs, i.e. Guernsey, and therefore outside the scope of VAT.  However, as a B-C supply it is one of the exceptions to the B-C general rule (being where the supplier belongs), and the place of supply is where the work takes place. As it happens, in this particular case both rules achieve the same outcome.  The work takes place in the UK so the supply falls within the scope of UK VAT; however, this does not necessarily mean VAT must be charged.

Section 16 of VAT Notice 741A sets out those services that may, in certain circumstances, be subject to the zero-rate of VAT when supplied in the UK.  These services include work on goods for export (legal reference: VAT Act 1994 Schedule 8 Group 7 item 1).

Zero rating under this provision applies where:

  • the goods on which the work is to be carried out have been obtained, acquired within, or imported into the EC for the purposes of being worked on; and
  • the goods are not used in the UK between the time of leaving the supplier’s premises and exportation; and
  • on completion of the work, the goods are intended to be, and in fact are, exported from the EC either:
  • by the supplier of the service (or someone acting on their behalf); or
  • If the customer belongs outside the EC, by the customer (or someone acting on the customer’s behalf).

The information you have provided indicates that your client will meet these conditions and therefore the supply is zero-rated.  Your client must obtain and keep satisfactory official or commercial evidence of the export of the car to a place outside the EU. Examples of acceptable evidence are set out in VAT Notice 703 VAT on goods exported from the UK.

 

HR Expert: School Runs

Q- My client has had several staff turn up late to work this week because of their school run commitments. What should they do about this?

A- Your client will understandably be keen to ensure all staff arrives at work on time in line with their contractual working hours. However, problems can occur during the month of September as working parents attempt to find a commuting routine which enables them to drop their children off at school in the morning and still attend work on time.

If your client finds staff are struggling to juggle these commitments then they should hold an informal discussion with the affected individuals, reminding them of their responsibility to attend work on time. Your client should explore solutions which would allow staff to arrive at work on time in the future, perhaps by asking friends or family to take care of the school run or by dropping their children off earlier at a designated school breakfast club.

During these personal discussions, it will be important for your client to refer to their workplace policy on lateness. Therefore, it is important that this policy is reviewed regularly and remains up to date for staff. A successful policy should outline an employee’s obligation to arrive at work on time whilst explaining the correct procedure should they need to notify your client of any lateness. A lateness policy should also be used to outline how your client will approach lateness from a disciplinary standpoint, with many favouring a three-strikes policy in the understanding that on certain occasions lateness will occur, however, repeated instances will not be tolerated.

If issues with lateness persist then your client should start to look at other ways to address the situation, including exploring flexible working opportunities. All staff with 26 weeks’ service have the opportunity to make a flexible working request, which could be utilised to allow parents to begin work 30 minutes later to enable them to carry out the school run. However, this may not always be feasible for your client, especially if they are a smaller organisation, as there is a chance this will lead to an influx of similar requests which may need to be refused due to outstanding business arrangements.

Ultimately your client is entitled to discipline staff who fail to arrive at work on time. Disciplinary procedures should follow your client’s workplace policies, which will often see repeat offenders issued with verbal or written warnings. To ensure fairness and prevent any unrest those with school commitments should not receive any preferential treatment over other staff when arriving late and persistent lateness may ultimately result in dismissal.

Your client should keep in mind that whilst some instances of lateness may take place during September, taking a firm but fair approach to the matter should prevent it from becoming a regular occurrence.

VAT Question of the Week: Recharges V Disbursements

Q- My client is an IT consultant, operating through a VAT registered UK company. He is supplying consultancy services to another UK IT business. He has incurred hotel, travel and meal expenses, and is charging these on to the company he is supplying. Can he treat these as disbursements, and therefore not charge any VAT on them?

A- The treatment of recharged expenses is a common cause of VAT errors. A disbursement is where you act on behalf of your customer in arranging and paying for goods or services, but the underlying supply remains between the supplier and your customer. Read More

HR Expert: Languages at Work

Q- My client has received complaints from some staff who feel excluded when two employees regularly speak to each other in their native language at work. What should they do about this?

A- Many organisations benefit from having a diverse and multicultural workforce. However, a common issue can occur, as in the example explained by your client, whereby certain employees feel excluded when colleagues regularly converse in their native language at work. Read More

Tax Question of The Week: Non-Resident Capital Gains Tax

Q- My client is a non-UK resident, having left the UK in April 2016. His main home which he purchased in July 2014 has been let out since he left. He is now planning to sell the property and is wondering whether he is liable to capital gains tax in the UK and whether there are any reliefs available to him?

A- Finance Act 2015 extended the scope of capital gains tax to non-UK residents disposing of UK residential property but only to the extent of gains arising after 6 April 2015. The capital gains tax legislation was amended to take account of the changes. The key changes were as follows: Read More