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Can income deductions be offset against UK income tax?
My client received employment income from the US after reacquiring UK tax residency.
The income was subject to deductions for Medicare, Medicare Additional and Social Security.
My question concerns whether these deductions can be offset against UK income tax along with the federal and state taxes paid?
Query 20,187 – Uncle Sam.
What to do about EBT reporting error?
I’ve just taken over a new corporate client. During discussions with the director it has emerged that the company implemented a fairly standard EBT loan scheme in the three years from 2006.
The trustees were the directors of the company and there was no separate trustee bank account.
The paperwork was poor, though there was a basic trust deed, and in reality all that happened was that money went from the company bank account to the director, described as an EBT loan.
The contribution to the EBT was not disclosed separately in the accounts or tax computations and the amount was simply included in directors’ remuneration.
The loan has remained in place ever since. HMRC has never raised any enquiries or issued any assessment in relation to these arrangements.
I am aware that the loan charge does not apply to loans made before 9 December 2010, so that is not a problem in this particular case. HMRC could, theoretically, challenge the arrangement on Rangers grounds but nothing is on the department’s radar at the moment.
What are mine, and my client’s, obligations in this situation?
HMRC could only assess using the 20-year time limit if the behaviour is deliberate. The client just did what he was told by the former adviser (who is now no longer in the scene) and in my view the behaviour was not deliberate, though HMRC might not take the same view.
Obviously my new client wants to let sleeping dogs lie. Can he do that?
Query 20,188 – Worried.
What year do dividends fall into?
A client has a substantial holding of Moller - Maersk shares held via an American depositary receipt (ADR).
This company declared a dividend and a special dividend in March 2023; both were paid on 31 March 2023.
However, according to the website (www.tipranks.com/stocks/amkby/dividends) the dividend payment by the ADR was on 17 April 2023.
The dividend was over £100,000, so I should be grateful if someone can advise as to which tax year this dividend falls into.
As an aside, Revenue and Customs Brief 14/12 indicates that the department regards an ADR as giving the owner a beneficial interest in the underlying shares, so I am leaning towards 2022-23 as the answer.
Query 20,189 – Anchor.
Is there a problem with split of cleaning business?
One of my clients owns a contract cleaning business which trades as a limited company, let’s say Company A.
The company is VAT registered but I suspect that it has a potential problem with its business model.
The cleaners used by my client are self-employed but not registered for VAT because they earn less than £85,000 each year.
The usual arrangement is for the cleaner to invoice Company A, which then invoices the final customer, charging 20% VAT.
However, if the final customer is not registered for VAT – or cannot claim input tax – my client gets the cleaners to invoice a separate company he controls with his wife – Company B – the latter is not registered for VAT.
Company B then invoices the final customer, charging a 10% premium on these fees – effectively sharing the VAT saving with the final customer.
The customer will directly pay Company B, which has its own bank account. Company B has annual sales of £80,000 and is not registered for VAT.
Do Taxation readers think that my client may have a VAT problem here, and is this problem retrospective?
My client thinks it is fine because the two companies have a different mix of shareholders – his wife owns 50% of the shares in Company B and my client owns the other 50%; he owns all shares in Company A.
He also correctly emphasised that the two companies have very distinct trading names and their own bank accounts and corporation tax references numbers.
Finally, there are no formal letters of engagements or contracts with the self-employed cleaners.
I would be grateful for readers’ views on this matter.
Query 20,190 – The Polisher.
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