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Redundancy or not?
Factors affecting eligibility of a redundancy payment.
For about 30 years my client has been the director and sole shareholder of a limited company that imports and sells high-quality garments. Activity ceased during the pandemic, although my client continued to draw a small salary from reserves. She has recently started to trade again, but is wondering whether this would be a good time to stop work.
She has asked whether she could take some of the cash reserves as a tax-free redundancy payment. My concern is that if the company simply stops trading she would, in effect, be retiring and such a payment would be taxed as earnings.
If she could find a buyer for the company or its business would this support the redundancy argument and would it make any difference if she were made redundant before or after the sale?
I would appreciate any comments or advice from Taxation readers.
Query 19,851– Althea.
Holdover relief
Making a holdover claim outside the time limit.
We have recently taken on a new trust client where it appears that a holdover claim under TCGA 1992, s 260 on the transfer of a property to a beneficiary in 2015-16 was not made.
If this is the case then the client is outside the normal four year time limit for making the necessary claim. However, when we come to disclose this to HMRC we believe that it would issue an assessment to collect the tax and that this could then provide an opportunity to make the necessary claim either in accordance with TMA 1970, s 43A, if there was no careless or deliberate behaviour, or s 36, if there was careless or deliberate behaviour.
HMRC’s Capital Gains Manual CG66889 seems to confirm this when there is no careless or deliberate behaviour, but the wording when looking at a situation where there was careless or deliberate behaviour is confusing. Here it appears to be saying that if the donee has not sold the property, as in this case, a claim will be possible but then appears to say that no claim will be possible in any event.
Paragraph CG66916, which has now been archived, seems to indicate that a claim under TMA 1970, s 36(3) would be possible, and our reading of the subsection concurs with that. However, when we have queried this with HMRC it has suggested that a claim would not be possible, although its reasoning is again confusing.
We would be grateful for any clarification that readers can provide.
Query 19,852 – Confused.
Machine hire
VAT implications of forming UK company for hiring goods.
I act for a German based company which, for many years, has hired a machine it owns to a UK business for one month each year, usually in September.
The German company has never registered for UK VAT because the UK business customer does the reverse charge on its own return. The machine is shipped into the UK from Germany for the month it is needed and is then returned to Germany four weeks later.
The directors in Germany have now decided to form a UK company – it will have no physical or permanent human presence in the UK and will be registered with Companies House at our office address. The day-to-day decision making will be made in Germany. However, one of the directors will come from Germany to the UK for the full month of the hire period.
What implications are created by the new company? The German company will invoice the UK company for machine hire; the UK company will apply a 20% mark-up to the fee and invoice the UK hirer.
Readers’ thoughts would be appreciated.
Query 19,853 – Merk.
General practitioner
Can a general tax practitioner produce legal agreements?
I am a general tax practitioner. Over the years clients have asked me to draw up concise one or two-page agreements, presumably to avoid solicitors’ costs.
Both sides to the agreement would then usually fill in the relevant sections or request alterations as appropriate. Typically, the work has included retirement agreements between directors and partnership agreements for continuing businesses. Interestingly, a solicitor who was preparing wills for a mutual client recently suggested I draw up the partnership agreement as part of an inheritance tax planning project.
The agreements never refer to a deed and are simply headed as agreements. However, I am now concerned that this may be a reserved legal activity.
Readers’ views on my position would be appreciated.
Query 19,854 – Jaggers.
