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Staying within FHL relief rules.
My client has a family run farm with a vibrant tourist offering which developed after the covid lockdown. This includes cottages, camping/glamping facilities, cycling, tours of the farm including the environmental projects, and trekking.
They are aware of the spring budget and of the possible abolition of the furnished holiday let (FHL) tax advantages which is due to go into the next finance bill. We must therefore look at the tax treatment of the trade of tourism. The cottages, chalets and glamping units are part of the trading operation and similar to a hotel with stays of only a couple of days as well as stays of up to two weeks. The invoices often include accommodation with activities as a package. There is always one member of the family (or staff) in the ‘reception/office’ from 8am to 10pm. They are part concierge, part organisers of tourism activities.
Would the cottage/chalet income have to be taken out of the trading operation (income and associated costs) for FHL tax compliance although they have always been part of the trade and are very integral to the trade?
Query 20,395 – Beach Lover.
UK invoicing procedures.
Our client, a UK company, is owned equally by three US university presses which are all treated as non-taxable in the US. As a standalone company it is a SME.
It provides sales services, and UK-based employees are employed via the payroll to obtain sales for the university press books which are imported and distributed in the UK. The UK company is a vehicle for the university presses to employ a UK sales team.
Currently there is a cost plus 5% agreement – the UK company incurs costs (rent, payroll, travel, etc) and is recharging to universities on a cost plus 5% basis as advised by their previous agent.
In practice, the universities only send cash to cover the upcoming spend as and when requested, the 5% has never been paid over and is creating a debtor balance in the accounts. The UK company is paying corporation tax on the 5% that it has never, in practice, received. Because of their tax status, (exempt), the US university presses do not get any tax relief for the expense.
Do they need to be applying a cost-plus approach to invoice the universities or can the UK company be exempt under guidance in INTM412100, etc? If the plus is not necessary, can we reverse the ‘plus’ applied in prior periods?
As confirmation that they should be subject to corporation tax in respect of unrelated business income: they have one other US university client that is not a shareholder to whom they supply the same service.
Query 20,396 – Printing press.
Cost of living in a gifted annex.
My client has an estate that would give rise to a reasonable IHT liability if left in its current state. Although there are other assets, about half of the estate is made up of a personal residence and she is considering gifting this to her daughter, who lives with them and who will be the only beneficiary on death. They are aware of the CGT possibilities and that there can be no reservation, but what we are concerned about is the pre-owned asset rules.
The property occupies approximately four acres of land and is made up of a house, an annex (to all intents and purposes another property, connected by an internal door, but also with its own external door), and various outbuildings. Planning consents allow the outbuildings to be used for the owners’ own use and that of their own business only, and the annex cannot be sold alone and must be occupied by a family member.
The client has various medical conditions that make it impractical for her to live alone. The plan is to give the whole of the property to the daughter, but for the client to then live in the annex. The benefit derived from the asset would not be considered negligible as the annex is basically a three-bedroom house.
The client has no problem with either paying tax under the pre-owned asset rules, or paying market rent to the daughter, but the question is, what would she have to pay rent on, the whole of the property, or just the annex where she would live? The difference is likely to be significant.
Query 20,397 – Jigsaw.
Is VAT due on equipment sale?
One of my clients received an order from a UK production company for the supply of electrical/music equipment relevant to a TV drama it is filming. The usual procedure is for my client to order the goods from its parent company in the US; import the goods to the UK; and then sell them to the UK customer for a profit. However, because of filming deadlines, the production company agreed with the US company that it would be declared as the importer when the goods arrived at Heathrow, so the customer was the importer of record and paid £15,000 VAT to HMRC when the goods arrived and £3,000 customs duty.
The problem is that my client has now invoiced the production company for the equipment, charging £75,000 plus VAT as a UK sale, but the production director claims that the invoice should be for £75,000 and no VAT because the company cannot pay VAT twice on the same goods, even though it is registered for VAT and can claim input tax. Is this correct? I cannot see how my client can sell standard rated goods without charging VAT. Do readers agree?
Query 20,398 – Disco Dave.
Queries and replies
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