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Property partnership
Suitability of partnership to allocate property income.
I have a client who wishes to transfer a commercial property he is in the process of buying to a property partnership consisting of himself, his wife and his adult son.
Under the terms of the partnership agreement, he will be entitled to 98% of any capital growth and will bear 98% of any capital losses which arise. His wife and son will each have 1% of capital growth or losses. However, rental income/losses will be allocated 98% to the son, and 1% each to the client and his wife. Partnership accounts will accordingly be prepared annually on this basis.
However, I am not convinced that a partnership could be justified on this basis since it is more in the nature of a joint property ownership situation, with no additional services provided.
I am aware that such structures have previously been recommended by one or more of the larger accountancy firms. However, I am doubtful if this structure is effective in passing income to the son where the underlying capital is largely retained by the father. Would the settlements legislation apply so that the rental income would still be assessable on the father?
Readers’ views are welcomed.
Query 19,771 – Doubting Thomas.
Payroll
Jurisdiction applying to Northern Irish company staff.
I act for clients who have a business that is based in Northern Ireland. The business employs staff from Northern Ireland but many of them live in the Republic of Ireland and commute in each day across the border.
However, in view the disruption arising from the coronavirus pandemic, staff have been working from home and we envisage that many will continue working from home in the Republic of Ireland for the foreseeable future.
My client is considering the following working arrangements for those who live in the Republic of Ireland:
- those who choose to work from home for most of the time but who would like to come into the office to work once a week or fortnight;
- other staff who can work from home in the Republic on the basis that they must log onto the computer which is based in Northern Ireland to be able to work.
My question for readers is to which jurisdiction should payroll be processed in these two situations?
Query 19,772 – Confused.
IR35
IR35 and same ownership companies with differing trades.
In determining whether a company falls to be treated as a medium or large company, the position regarding groups and joint venture companies is clear.
However, we have several companies owned by the same persons. According to HMRC guidance, we are required to add the accounting results of these companies to see if the size criteria is breached for off payroll working purposes. Most of these companies are small if looked at independently, but they would appear to be medium or large if all the companies are considered together.
We also have several companies where the trades are connected but others where the trades are completely different.
HMRC advice on this matter is that we need to look at all companies in the same ownership irrespective of the company trade.
Can readers give me some assistance on this and comment on whether they agree with the HMRC guidance?
Query 19,773 – Puzzled.
Racing expenses
Input tax on racing car expenses.
We have a client who has purchased an old car, had it restored and wishes to use it as a racing car. They have three purchase invoices:
- Purchase of the car itself – no VAT charged.
- Restoration to road-worthiness – VAT charged.
- Race preparation – VAT charged.
Initially, we were told that the car would be raced as part of gaining publicity, press coverage, etc. It was regarded as marketing and promotion. We are now told that on some occasions, clients will be invited to attend the races and possibly, even be allowed to drive the car. I regard this as client entertaining.
My thoughts are that the VAT on the restoration cost would not be recoverable, as effectively part of the capital purchase cost of the car.
However, what about the race preparation costs? If it were pure marketing and promotion, would the input tax be recoverable? If it is part promotional and part entertaining, is there any scope for apportioning the VAT and, if so, on what basis, given that the proportional actual future use is unknown?
I look forward to receiving readers’ replies.
Query 19,774 – Hamilton.
