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Spouse wages
Excessive remuneration of a spouse by a business.
I am sure it is a fundamental and probably universal law that, when throwing away old newspapers, there is always an item that catches the eye and gets one thinking.
The story that leapt off the page in this case was of an company boss who had been banned by regulators for apparently transferring ‘excessive’ amounts of pay to his wife. It seems that the payments were for out-of-hours administrative support and occasional hospitality at home. Originally, her pay was between £5,000 and £10,000 a year which was deemed not unreasonable, but this rose to about £50,000 a year.
This started me worrying about some of my clients. To a large extent I have only their word that the amount they pay their spouses is reasonable. In cases where I deal with the business payroll, the amounts usually seem on a level with some of the other employees (in some cases, some of the higher-paid ones) but on reflection I am now wondering whether this means that they are, in fact, doing comparable work.
If they are being overcompensated this may have been the case for some time and I am wondering how best to address this with clients. Also, what are the potential downsides in the event of a challenge from HMRC?
Can Taxation readers advise please?
Query 19,559 – Hyacinth.
Estate valuations
Implications of the valuation of assets of an estate.
I have not been accustomed to dealing with estates, but as my clients get older it seems more likely that this is something that will come within my purview. Generally speaking, I have always assumed that, when valuing the assets in an estate, one should look for low rather than high valuations.
Property is a case in point. When valuing, say, a property that was the testator’s main residence there will presumably be a range of figures with the property being expected to sell for something between the lower and upper amounts. Many will presumably adopt a lower valuation often based on a fear of an inheritance tax liability – and I have even seen this approach taken when there is no possibility of inheritance tax being paid because, say, the deceased has the benefit of their spouse’s nil rate band and the residence nil rate band.
At that point, and with no inheritance tax liability, the valuation may be largely academic, but what happens if the property is subsequently sold at a substantial gain over the probate valuation? Will the executors or the beneficiaries then suffer an unnecessary capital gains tax liability? Is there any residual exemption because the property was the deceased’s only or main residence? Alternatively, if the property was sold for less than the valuation, who receives the benefit of the loss – can the beneficiaries carry their shares forward against future gains?
I hope Taxation readers can provide some basic guidance in this area.
Query 19,560 – Mortimer.
Coronavirus crisis
Option to tax dilemma with subletting.
One of my clients purchased the freehold of an office block in January for £200,000 plus VAT, and then spent £60,000 plus VAT on improvement works. It was intended to be used solely by company employees and the business is fully taxable, so input tax was claimed on all costs.
The employees were due to move into the building in March but this was put back because of the coronavirus crisis and employees have been working from home instead, so the office has been empty since it was purchased. VAT returns are completed up to the end of January, April, July and October.
My question concerns VAT. As a result of the coronavirus crisis, and the redundancy of some employees, plus home working, the client has agreed to sublet the top two floors of the building (there are four altogether) to an insurance company, starting from 1 August 2020. My client’s employees will use the other two floors once the lockdown period ends but not before 1 June at the earliest.
Do we need to opt to tax the property and charge VAT on the rent to avoid an input tax problem on the original purchase of the building and subsequent works? The insurance company obviously does not want this to happen because it only makes exempt supplies and cannot claim input tax, in which case my client would have to discount the rent by 20%. What are the consequences of not opting to tax?
Readers’ thoughts would be much appreciated here.
Query 19,561 – Confused.
Extra expenses
Can an employee claim a home-working allowance?
I was interested to read the article ‘Working from home’ (see Taxation, 2 April 2020, page 18) and the news that the homeworking allowance payable by employers had been increased from £4 to £6 a week. I have heard a couple of mentions elsewhere that, if an employer is refusing to pay this, an employee can claim an equivalent amount against their earnings. However, I have been unable to find official confirmation of this. Can readers enlighten me and how can such a claim be made easily?
Also, several employee clients have asked whether the cost of buying a laptop to enable them to continue working from home would be allowable. Apparently they use desktop machines at work and were unable to bring these home. The employers seem reluctant to pay and I’m not sure whether these would pass the ‘wholly, exclusively and necessarily’ test.
Would a claim for the cost be allowed?
Query 19,562 – Bob Cratchit.
