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Which information should I include in the white space?
My client was a minority shareholder in a company that was sold last year. After the sale, the purchasers discovered a fraud, and the various vendors had to repay some of the proceeds in accordance with the warranties and indemnities.
I am satisfied that that reduces the proceeds for CGT. My client helped negotiate the amount with the purchasers and make sure the problem did not escalate.
He did this for his own interest and because he is good at that sort of thing; he did not expect that the majority shareholder would, after the event, give him an amount equivalent to the proceeds that he had to pay back under the warranty.
As far as I can see, he has a capital gain based on the reduced proceeds, and quite separately a non-taxable gift from the majority shareholder, which was simply a token of gratitude. I am considering including information about this in the white space on his next tax return, but not including the money in the computation of gains.
What do readers think? Explain or not, include or not? Query 20,275 – Windfall.
Getting HMRC to repay tax wrongly deducted.
My client was headhunted by a tech start-up at a salary of £50,000 a year. On the Friday before the Monday when she was supposed to start, they rang to say they had reworked the budget and they couldn’t afford her.
The following week the CEO had the decency to ring to apologise and to say that the company would pay her a month’s salary. In my view, that is clearly not taxable – she never even started the job, and never had a contract. It is purely compensatory and consolatory, and not related to any employment.
However, the company deducted PAYE, and filed a return to show that this was salary for the month of March 2023 – her start date was supposed to be 20 March.
I have written to HMRC to ask for a repayment of this tax, as I consider that it has been incorrectly deducted. The first reply was a fob-off; the second reply has at least included a technical helpsheet (OCA234A) explaining how to resolve an ‘end of year pay and tax discrepancy’.
It says that my client has to go back to the employer (not!) for a correction. I think HMRC has admitted it received the payment, and it should pay it back to my client.
What do readers think? Query 20,276 – Recruit.
Could HMRC challenge structure to set off loss?
My client is a farmer. I am comfortable that he is carrying on the farming business on a commercial basis with a view to profit, but the business is making losses. He has made losses in the last five years which have been, or will be, set against other income and he is now in the sixth year. If he makes a loss in this year as well he will not be able to set it against other income.
Things are a bit more marginal this year. If he makes a profit then that will reset the clock for loss set off if he makes losses again in future years. He has suggested to me that he can declare a small profit if he simply doesn’t claim a deduction for some of the farm expenses even though they are undoubtedly legitimate trading deductions. I have said to him that this would not work because the test is an objective one of whether the business has made a loss (not whether a loss is actually incurred).
He has then suggested that he puts off until early next year some repairs and maintenance that he would otherwise have done this year. Not incurring that expense this year would ensure that he makes a small profit.
I think it would be difficult for HMRC to challenge this course of action because it is a commercial decision (albeit with tax consequences) about when he incurs the expenditure. But I still feel a little uncomfortable that this might be treading close to the edge of what is acceptable.
Any thoughts from readers would be much appreciated.
Query 20,277 – Farmer Giles.
VAT charged to flat tenants: is this a problem?
I am concerned that one of my new clients has scored a VAT own goal.
To cut to the chase, he purchased the freehold of a property – no VAT was charged by the seller – that consisted of a ground floor flat and first floor office; he converted the first-floor office into two flats.
He opted to tax the property with HMRC and rents out both flats and the shop – however, the shop is rented to his daughter who runs a pet shop that is not VAT registered and he has not yet charged her any rent while she establishes her business.
My client had this great idea that if he charged the two flat tenants VAT on their rent, then 100% of his property income would be VATable and therefore his decision to claim input tax on all costs since the project started would be justified.
He spent £100,000 plus 5% VAT on the two flats and £30,000 plus 20% VAT improving the shop. Is there a VAT problem here? Query 20,278 – Speculator.
Queries and replies
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