.png)
.png)
Connected persons
Are these companies ‘connected’ for tax purposes?
Two companies have recently entered into a transaction, the tax treatment of which would depend on whether they are connected with each other for tax purposes.
Burrow Limited is a UK company, whose 100 ordinary shares are equally owned by James and his wife Lily. Willow Limited is also a UK company, whose 100 ordinary shares are equally owned by Fred and George – the adult sons of James and Lily.
We referred to the four tests under which a company would be connected to another company, as set out in CTA 2010, s 1122(2), but could not reach a clear conclusion.
Our understanding of the criteria is that s 1122(2)(a) and s 1122(2)(d) are not met, due to neither company being under the control of ‘the same person’ or the same ‘group of two or more persons’.
It is less clear whether or not one of the remaining tests is met; s 1122(2)(b) and s 1122(2)(c) both appear to require ‘a person’ to control one company – which on first sight does not seem to be the case here.
Would readers agree with this analysis and is there another provision by which the companies would be deemed ‘connected’?
Query 19,719 – Riddle.
Gift aid
Which charitable donations qualify for gift aid?
HMRC’s basic guidance on the availability of gift aid is simple. It is that a recognised charity can claim gift aid on donations from individuals. The donor must have paid the same amount or more in income tax or capital gains tax in that tax year and make a gift aid declaration that gives the charity permission to claim it.
However, there are then some special rules which are not entirely clear. Readers are asked if donations made to a charity in the following, pre-covid circumstances can be the subjects of a gift aid claim.
- Bill gives a talk to a Women’s Institute meeting and in return is offered a small payment to be given to a good cause of his choice. He remits it to a registered charity along with a gift aid form. The charity is aware of the history of the receipt and understands that it has not been entered on Bill’s income tax return.
- Ben organises a large party with a fixed charge for entry. Prospective attendees are told that all profits will go to a clean water project in a developing country. Ben passes the profit to a charity that is registered for gift aid which has broad powers to give to various good causes, including the water project. Ben accompanies the payment with a gift aid form. The charity understands that it has not been entered on Ben’s income tax return.
I look forward to hearing from readers.
Query 19,720 – Toast.
Wayleaves
Rolling over wayleave payment in land acquisitions.
Our client company has been in receipt of annual wayleaves (although not a recognised term in Scots law) in respect of power lines attached to a row of electricity pylons situated on its land in Scotland.
The electricity company has now entered into an agreement to pay a capital sum in respect of future wayleaves due. Our client company does not expect to receive any further income from this source but equally it has not actually disposed of the land on which the pylons are situated.
Do readers consider that the gain on this capital receipt could be rolled over into the acquisition of other buildings and land?
Query 19,721 – Poleaxed.
Agent fees
VAT on commission for sale of painting.
I act for a UK based agent in the world of art and he has just agreed a lucrative deal that will earn him a large commission.
My client is registered for UK VAT. His customer is a private individual in Australia – he has found a buyer for a painting owned by the Australian that is currently located in a gallery in the Netherlands.
The buyer is based in Sweden, so the painting will move from the Netherlands to the mansion of the buyer in Sweden. The buyer will directly pay the Australian and my client will invoice the Australian for 10% of the price as his commission.
As I understand it, my client’s fee will not be subject to UK VAT because the place of supply will be Australia, where my client’s customer is based. Is this correct?
To add a twist, my client will pay half of his commission to another agent who played a key part in the deal. This agent is based in Sweden and will invoice my client for 5% of the selling price. Presumably he will not charge Swedish VAT, or has Brexit changed that outcome?
Readers’ thoughts would be appreciated.
Query 19,722 – Turner.
