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Loan account split dilemma.
The capital assets of a farming partnership are owned in equal 25% shares by mother, father, son (S) and daughter (D). Along with the farming business, the farm’s land and property and associated assets are being transferred into a new company. The cost of the farm being quite significant, we are content to transfer it at cost, claiming holdover relief (TCGA 1992, s 165).
Each partner will make a s 165 claim to holdover the gain that would otherwise arise on their share of the farm’s land and property, and the cost of this, along with the other assets that it is decided should be transferred into the new limited company (set up with a nominal share capital) will create a loan account which can be drawn on by the former partners who are now the directors/shareholders of the new company.
Our dilemma is how the resulting total loan account due to the former partners should be split across them.
Our first thought was that it should be split equally as the four partners owned an equal share of the assets. The trouble with this approach, is that the parents have been taking a backseat in running the farm, so their annual share of the trading profit has reduced, and S and D now have higher capital account balances (as they are not withdrawing that increased profit share).
Since the partnership’s closing capital account balances are skewed, if the loan due by the company is split equally, there will be a shortfall due by the partnership in relation to S and D’s capital accounts and the parents would receive more than their capital account balances. The answer must be that the loan due by the company is shared so that it matches the partners’ closing capital account balances, but we can’t find any statutory support for this. If that is the case, does that ‘adjustment’ constitute any form of gift?
Query 20,303 – Puzzled.
Managing risk on a childcare scheme.
My client is a company that is looking to implement a scheme to help its employees with childcare. This is not something on which I have advised before.
The company does not have the expertise or facilities to provide childcare itself but has made contact with a third party provider which will, for a fee, put arrangements in place for the childcare. My client would then offer a salary sacrifice scheme to employees who wished to participate.
The basic research I have done suggests that this can be a problem area, because it appears that in some of these schemes the employer plays no real part in the provision of childcare even though that it is a requirement of the relief. So I have two questions. The first is how my client can go about satisfying itself that the arrangements do meet the qualifying conditions and, secondly, if it all goes wrong and relief is not due where would the tax cost fall – on the employer or on the individuals who take part in the scheme?
Any practical experience readers can share would be very much appreciated.
Query 20,304 – Cautious.
Claim for compensation for stress?
Our client is an elderly lady who suffers from a heart condition and shouldn’t be subjected to stress, especially when the fault lies clearly with HMRC.
Her tax return for the year ended 5 April 2022 was submitted electronically in November 2022 and we have the acknowledgment to prove it. To our surprise she received a fine of £100 in May 2023 for non submission. No explanation was offered so I called HMRC who said there was an error on the return which, it claims, gives HMRC the right to reject it. I asked for details of the error only to be told that the HMRC employee did not have the authority to tell me and I should write in. I pointed out that if it took, say, six months to get a reply further penalties would accrue. My client would also not get the chance to correct the return (if it was needed) before the 31 January deadline.
I also made the point that if a return was reviewed a few years later and a small error came to light then would HMRC be allowed to reject that and impose penalties plus a few years’ interest? In the end HMRC admitted its mistake as the alleged error occurred in a partnership return which our client had left at least seven years before.
The figures are small but my client’s suffering was considerable. Do readers think there is a compensation claim here?
Query 20,305 – JC.
Correct approach to correct VAT charge.
I know that charging VAT on a supply that should be zero rated can be corrected only by submitting a VATA 1994, s 80 claim to HMRC – the credit note procedure in SI 1995/2518, reg 38 is available only for a ‘change in consideration which includes an amount of VAT’, and a supply that should be zero rated does not.
The difference is important because the four-year cap applies to s 80 claims but not to reg 38 adjustments. What about a supply that was charged at 20% but should have been reduced rated? There is a change in the consideration – say from £120 to £105 – and it ‘includes an amount of VAT’.
However, there is no change in the net value of the supply – only in the VAT. Reg 38 refers to ‘consideration’, not the net value, but I suspect that HMRC would not agree that a time-unlimited adjustment could be made through the VAT account without a claim being submitted. Can anyone confirm the correct approach?
Query 20,306 – Hopeful.
Queries and replies
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