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Correcting careless taxpayer’s affairs.
A client has been approached by HMRC with a generic ‘we believe you have some undeclared overseas income’.
Having undertaken a comprehensive review of the client’s affairs, we discovered undeclared overseas bank interest income which commenced three years ago and which the client did not consider as taxable in the UK (as it was tax free in the overseas territory) – although it very clearly is.
The amounts are not huge – about £3,200 for each of 2018-19, 2019-20 and 2020-21 – and having regard to the client’s other income (UK employment of some £71,000) we have established an underpayment of income tax.
The client accepted her behaviour here as careless, however doubt has arisen as to the best course of action in bringing her affairs up to date.
The client has never filed a tax return and her income was always covered via PAYE.
The default route seems to involve a voluntary disclosure to HMRC for all three tax years. Penalties will apply based on a prompted disclosure.
Alternatively, the client can apply for a unique taxpayer reference and file tax returns for the three years, declaring the original employment income as well as the offshore interest income.
Would there be a benefit in choosing either route as far as penalties are concerned, or from any other aspect?
I would appreciate comments from readers with experience in this area.
Query 20,011 – Methu.
Would payment qualify for the golden handshake exemption?
My client is an employee of a large public sector organisation. He has started to draw his final salary pension as he has reached the required years of service, but has been kept on as an employee and is still paid a salary as well.
Now the organisation has decided to offer him voluntary redundancy with a payment of £150,000. If he takes it, it is unlikely that he will work again. My question is whether this will qualify for the £30,000 ‘golden handshake’ exemption.
I recall hearing some years ago that ‘redundancy at the time of retirement’ would be regarded by HMRC as effectively a lump sum from an unfunded retirement benefit scheme and therefore taxable in full. Is that correct, or is it arguable?
If arguable, what factors should be taken into account in reaching a decision? And if the payer treats £30,000 as exempt, what would I need to put on the tax return?
Query 20,012 – Lucky Strike.
Capital gain on residential land and share of new property.
Our client has purchased a residential property in need of some modernisation. His intention was to renovate and keep the property as an investment property.
However, a property developer has advised that if he demolishes the property and sells him the land, the developer will build a new residential property and my client will be entitled to a share of any gain made by the developer.
My client will not be actively involved in the new development but would organise demolishing the original property prior to a sale of the land.
Hopefully for my client there will be two transactions to report on his tax return in two different tax years.
I would like to think that both would qualify as capital transactions but I think that the change in direction would render one or both transactions as trading and would be grateful for readers’ advice.
Query 20,013 – Double Trouble.
Is there VAT on influencer fee?
One of my clients carries out a range of internet-based activities, one of which is to trade as a ‘social influencer’ in the world of sport. He is VAT registered as a sole trader.
A personal friend of my client wrote a sports novel recently and my client plugged it on the web and through his various blogs and other mediums, which led to a lot of extra book sales.
The author gave my client £10,000 for his support of the book, even though there was no agreement in place for him to do this.
The incentive of the friend was that he is soon to publish a follow-up novel and is hoping for a similar plug for that book.
My client said that he promoted the book because he thought it was a brilliant read and he also wanted to support his friend.
My view is that the absence of a contract and business motive means there is no output tax liability for VAT purposes on the £10,000 fee but that it must be declared as turnover on my client’s self-assessment return as it is income received as a result of his primary trading activity.
What do Taxation readers think?
Query 20,014 – Dickens.
