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Company purpose
Providing evidence of company activities for HMRC.
I have set up a new company, in which I own all of the shares, and it is about to embark upon its first transaction.
One of the tax issues I have been told that might arise is whether or not this company will be regarded as a trading company. It will have substantial income from what might be perceived by an onlooker as a non-trading activity.
It is my understanding that because my new company has just one director there is no requirement to have formal board meetings. But in the absence of board meetings and detailed board minutes, do readers have any suggestions as to how to provide written evidence of its activities and purpose?
It has been suggested to me that I should engage a solicitor to act for the company and send a detailed email explaining the nature of the business and the full proposed modus operandi, and ask for advice on any legal protections which should be put in place. For example, I could ask whether the trading should be conducted through a wholly owned subsidiary.
Another suggestion is that I should draw up a detailed business plan to send to a bank manager even though I am not seeking any external finance.
Do readers have any better and less costly ideas of how to create a paper trail showing the objectives for the company in case of any future dealings with HMRC?
Query 19,751 – Standalone.
Rental POD
Tax consequences of Airbnb pod in garden.
My client is intending to build a pod in his garden to use as an Airbnb. It is a separate building that is not attached to his residence. I am told that many of my client’s neighbours have done this and as he is coming up to retirement it will be a useful source of income. He has assured me he will comply with Airbnb regulations.
I have the following questions:
- Would this be the same as a buy to let?
- Can he claim for the cost of building and fitting out the pod as a tax deduction?
- What are the capital gains consequences if he ever sells his home?
- Will the Airbnb income be taxed as a normal letting income with expenses?
I would appreciate Taxation readers’ assistance on this matter.
Query 19,752 – Hobbit.
Family home
Inheritance tax on downsizing property for elderly parent.
My client transferred his home into the names of his three children 20 years ago with a view to asset protection ahead of his second marriage.
The family home is now too big for the elderly parent, and the family is looking at downsizing his home. The children have always been aware that there would be a capital gain and their current personal positions mean that the tax for two of the three is minimal.
I am, however, concerned about the potential inheritance tax issues. The house is currently worth £380,000, which is going to be considered as part of the father’s estate under the gift with reservation of benefit rules. This value exceeds the standard nil-rate band, excluding the property nil-rate band. Is the property nil-rate band still available when calculating the inheritance tax due on an asset subject to the gift with reservation of benefit (GWROB) rules?
The children are considering purchasing the new house in the father’s sole name, which presumably constitutes a potentially exempt transfer (PET) from them to their father. But what happens to the father’s estate if one of the children predeceases him and he dies within a short period after their death? Is there effectively a duplication of values if the GWROB comes into account after the sale of the property as a PET and the children make a gift of the purchase price of the new property?
Advice from readers would be gratefully received.
Query 19,753 – Confused.
VAT deregistration
Fish business and deregistration dilemmas.
Our business purchased some land in June 2012. We built an angling centre on it, which holds our stock of fishing equipment for resale.
The land includes a river area with a healthy stock of fish for the anglers. The building was completed in February 2013 but we did not start trading until July 2013.
We paid £120,000 plus VAT for the land and £190,000 plus VAT for building costs, including professional fees. We complete VAT returns on a calendar quarter basis and claimed input tax on all of the project costs. We have never opted to tax the land.
Our annual turnover has always been below the VAT registration threshold so we would like to deregister at the end of May 2021. Is this possible or will there be an input tax clawback on the land and building works?
I am also confused about the VAT rules on closing stock when we deregister. We paid VAT when we bought about half of our fish but numbers have increased with breeding. Further, the value of the fish increases when they grow and some fish die.
Can we ignore fish stock when we deregister? The cost of stock in the angling shop is about £14,000 – our only other asset is a van that we purchased from a private individual three years ago for £6,000.
Readers’ thoughts would be appreciated.
Query 19,754 – Salmon Sam.
