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Are coaching fees subject to VAT?
My client (a UK company) has a personal fitness business, which provides personalised programmes to individuals looking to lose weight and achieve other fitness goals.
The fees (charged weekly) cover regular one-on-one coaching sessions, personalised fitness/dietary plan, and access to a community platform with videos/helpsheets, etc. These coaching services are delivered via live video conferencing software.
My client has had a lot of interest from potential clients outside the UK. My question relates to VAT.
Do readers think the fees charged to the non-UK customer would fall under the basic B2C rules and VAT should be applied to all sales? Or looking at the relevant VAT notice and legislation, do readers think there could be scope for the fees to be considered consultancy services (Sch 4A para 16) or something similar?
Query 20,255– The Island.
Should client claim substantial shareholdings exemption?
Some years ago, my client trading company set up a subsidiary company to carry on a separate project so as to isolate any risks associated with it.
The directors of another company have recently expressed a wish that they should become involved as they also have experience in this area of business.
The shareholders of my client company believe that this could be beneficial for all parties and have suggested that shares in the subsidiary company could be transferred to them or their company.
They are thinking that the share transfers could take place over a period of years linked to agreed increases in the subsidiary’s profits.
I am wondering whether such transfers would be eligible for the substantial shareholdings exemption. Are there limitations to this relief if the shares are transferred in tranches?
Can readers also advise on how this relief should be claimed? I have looked everywhere in the corporation tax return guidance, but I have not been able to deduce how should one indicate in the CT600 form that a chargeable gain should benefit from the substantial shareholding exemption. There is no specific box for that relief. Should the gain simply be left out of the tax return?
Query 20,256 – Rocky.
When is a guarantee not a guarantee?
My client owns a substantial investment company, which has a mixed portfolio of property and financial investments.
He is in the process of selling 100% of shares in the company and will realise a substantial capital gain. He accepts that BADR will not be available. The vendor has offered to structure the purchase with an upfront payment of 50% of the total value and the balance in loan notes redeemable in tranches over five years.
My client is minded to accept this structure as it would allow him to spread the gain over a number of tax years but is obviously concerned about the risk of the purchaser failing to honour the loan notes and he has sought some form of guarantee from the purchaser.
The purchaser has agreed to this and a bank guarantee has been arranged. It turns out that the guarantee will be backed by the purchaser depositing a sum equal to the value of loan notes with the bank. So the day one cash outlay for the purchaser will be the full value of the consideration, even though my client will only receive half of it immediately, with the other half going to the bank to secure the guarantee.
Does this sort of bank guarantee actually work or will HMRC simply say that as the purchaser had sufficient cash to pay the whole of the consideration upfront the only reason for the loan notes is to defer my client’s tax liability?
Query 20,257 – Essie.
Business splitting to save VAT for kitchen fitters?
I act for four brothers from the same family. All are sole traders trading as kitchen or flooring fitters and they are trading close to the annual VAT registration threshold of £85,000; this is partly because of the kitchen units and flooring materials that they source for their customers and then invoice on. They apply a mark-up to the goods, which is an important source of profit.
My question is as follows: if their mother set up her own limited company to buy the materials from the suppliers – registering for VAT from day one – would it be legitimate for customers to trade with her company in respect of the material purchases and with her sons in respect of the fitting costs? In other words, would there be a problem with HMRC’s business splitting VAT rules? All of the customers are residential, so are unable to reclaim input tax.
Also, would the sons need to be completely separate from the mother’s new company, eg they could not be shareholders?
Finally, could they invoice the new company for some of the mark up on the materials that they currently benefit from?
I am aware of the business splitting rules but I am not sure if the above arrangement would work legitimately.
Readers’ thoughts would be appreciated.
Query 20,258– Kitchen Keith.
Queries and replies
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