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Correcting corporate tax return error.
The accounts of our client, a UK owner managed business (OMB) company, showed an overdrawn director’s loan account as at 31 May 2021 of some £48,000. On 22 August 2021, the sole director-shareholder confirmed to us in writing that a repayment of the balance to the company was being made that very day and, on this basis, both a s 455 charge and a claim for relief therefrom was claimed in the company’s corporation tax return for May 2021 in respect of loans to participators repaid within nine months.
Preparation of the May 2022 accounts had been delayed and it was only in June 2023 that we became aware that no such repayment was made by the director. In response, the client advised that this was a genuine case of confusion whereby he intended to make the repayment but got distracted before executing the transfer. We have never had a reason to challenge the director’s statements and for many years found him trustworthy.
We are satisfied (having seen supporting evidence, this time) that the loan has now been repaid and a repayment of the s 455 charge will be available nine months after the year end of 31 May 2023.
These events give rise to a requirement to revise the 2021 CT return, so that the appropriate s 455 charge is returned. However, we are presently out of time to do so, and presumably the charge will have to be notified to HMRC in an alternative manner.
We understand that a voluntary disclosure using the digital disclosure service may be appropriate, but we feel that this would be rather cumbersome for a relatively straightforward matter.
Could readers suggest a practical approach of making good this error.
Query 20,171 – Remus.
Is agricultural property relief available on future disposal?
My client is a farming partnership consisting of two brothers, one of whom lives in the farmhouse associated with the farm, together with a relative. The relative is not involved in the farming business. The other brother does not live in the farmhouse.
The farm was, until recently, a working farm for the growing of crops. Due to the ill health of both brothers, the partnership has ceased farming and they are letting out the farmland to a nearby farmer who is renting the land from them and the tenant is now growing crops on it. The retired farmer continues to live in the farmhouse.
My question arises with regard to agricultural property relief and the seven-year rule where the agricultural land is farmed by somebody else on an agricultural tenancy which has only just started in the past 12 months. Does the seven-year rule take into account the previous occupation by my own client for the purpose of farming themselves, or does the seven-year rule stand alone which means that the agricultural tenancy must subsist for seven years before APR is available to them on a future disposal of the farmland?
Query 20,172 – Farmer Giles.
What to include on former Belgian resident’s return?
Our client was employed in Belgium for a number of years before he retired in early 2001. Since then he has been receiving a state pension from that country, the details of which have been included on his tax return each year. However, he has recently been contacted by the Belgium tax authorities informing him that under the terms of the UK Belgium tax treaty, Belgian tax must be deducted from the state pension commencing in the fiscal year 2018-19 onwards.
He has received assessments for 2018-19 and 2019-20 and he has settled the relevant liabilities. Our client is of the opinion that details of this source of income should no longer be included on his tax returns commencing 2018-19 when tax deductions were first made.
It appears that the Belgian tax authorities will be raising additional assessments to cover the fiscal years 2020-21 and 2021-22. Our client wishes to establish whether he should cease including the state pension on future tax returns and whether he can reclaim UK tax already paid thereon with effect from 2018-19 onwards.
Readers’ help would be appreciated.
Query 20,173 – Hopeful.
Self-billing VAT error: how is it corrected?
One of my clients trades as a property developer and issues self-billed invoices to its building contractors. We have just discovered an accounting error on a contract that involves the 5% rate of VAT, the conversion of an office block owned by the client into apartments.
- We issued self-billed invoices to one builder and incorrectly coded all of them as zero-rated VAT.
- The builder thought he had to issue a VAT invoice as well, so has been issuing these invoices and adding 5% VAT. Our purchase ledger clerk ignored these invoices because the self-billed document takes priority.
- The error has now come to light and the total VAT owed to the subcontractor is £12,500.
My view is that the client can pay £12,500 to the subcontractor on the next payment run and issue a self-billed VAT only invoice for this amount, claiming input tax on their next return. But as the VAT is more than £10,000, is this the correct approach?
Query 20,174 – Speculator.
Queries and replies
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