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Entrepreneurs’ relief
Carrying on business after company liquidation.
Our client’s company gave advice on the strategic development of clients’ businesses before he decided to retire.
In July 2020 he instructed insolvency practitioners to liquidate his company and received £3m. The last invoice issued by the company was in April 2020. The final receipt from the liquidation was in October 2021.
In November 2021, our client was asked by a fellow patient in hospital to advise him on how to sell his business. Our client will receive £200,000 for arranging this sale. He received a first payment of £12,000 in February 2022 and will receive £4,000 a month from April 2022. The sale is expected to take place between May and July 2022, when our client will receive the balance.
We are concerned that our client might be caught under the phoenixism rules, as this new activity will take place within two years of the liquidation.
First, we are not sure what date the two years starts to run.
Secondly, can he retain the entrepreneurs’ relief on his previous liquidation if he genuinely did intend not to start up in the same business? It is unlikely that he will do any further work after the current consultancy.
Can we assure the client that his entrepreneurs’ relief is secure?
Query 19,931 – Peter the Great.
Friendly society
Tax concerns for friendly society transferring property.
My client is a social club and institute (WSC) that is classified as a friendly society. There is a trustee who ‘owns’ the property and a management committee that looks after the building.
The original property was purchased in 1864 for £800 and consisted of a two storey property which has since been developed to a three storey building complex. The property is on the balance sheet of the friendly society. The remaining book cost is £15,000. Although its insurance value is £4m, its true value is probably £500,000. The only income is from hire and rentals.
WSC is not a trading concern and does not have any income associated with a friendly society. My client has tried for grants but this requires a charitable status which has been refused.
If the property is transferred to a company limited by guarantee, or a community interest company (CIC), what is the capital gains tax position for the friendly society, and the stamp duty obligations on any transfer?
If it does have a capital gains tax liability on the transfer, is it possible for the WSC to create a long lease of over 99 years to a new CIC? This would allow the CIC to apply for grant funding. But would the WSC have any capital gains tax liability on the creation of the lease?
I hope readers can provide advice.
Query 19,932 – Headache.
Working from abroad
Payroll reporting obligations for an overseas worker.
My client runs a small but profitable magazine for computer scientists. After the Covid outbreak his staff began working from home. This has worked well and the company has decided that home working can continue even after the pandemic restrictions are lifted.
My client has just discovered that one of his employees has been working almost continuously from a holiday home in Spain during the pandemic and intends to continue to do this indefinitely. The company has been operating PAYE and National Insurance in the normal way because it was not aware that the employee was working from Spain.
Now that it knows about this can it still continue to operate PAYE and National Insurance or does it now have different reporting obligations?
I look forward to receiving replies.
Query 19,933 – Envious.
VAT
VAT payback rules for sale of land.
I act for a client who is a big property developer and is VAT registered. Five years ago, the client purchased a plot of land to building houses and sell them. He incurred input tax of about £20,000 on professional fees to get planning permission, which was successful, and claimed this input tax on his VAT returns.
However, he actually sold the land to another developer three months ago for a healthy profit, incurring a further £2,000 VAT on legal fees, which he has also claimed. He never started any building work – it was a sale of bare land. The sale was exempt because my client never opted to tax the land.
I am aware of the payback and clawback rules for VAT but my understanding is that the £20,000 of VAT incurred five years ago is averaged out – £4,000 a year – and this figure is less than the partial exemption de minimis threshold of £7,500 each year. So, no adjustment is needed. But do we then add £20,000 to £2,000 for the current partial exemption year, meaning that we must pay back £2,000 when we do our partial exemption annual adjustment next year because £22,000 is greater than £7,500. My client has no other exempt income.
Query 19,934 – Speculator.
