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Was book find an appropriation from trading stock?
My client is a dealer in rare books. He also collects books and memorabilia on railway history. Quite often he will buy a collection of books – say when somebody is clearing their deceased parent’s house – and if he finds a rare or interesting railway item, he will often take it to add it to his personal collection rather than put it as stock for sale (he doesn’t have a shop and operates exclusively online). Some of these items can be very valuable.
When buying a collection he will pay a single price for the collection and, quite often, it is only when the collection is inspected at his premises that he finds rare items (and, of course, sometimes he finds that what he has paid for is a collection of duds not worth the price).
Recently he came to me to say that, in a collection for which he paid £750 in total, he found an early book on the Liverpool and Manchester railway worth £5,000.
He asked me about tax. Was this an appropriation from trading stock? If it was it will produce a trading receipt of £5,000. But he would argue that it never entered trading stock in the first place. If instead he were to disallow the cost of the book in computing trading profit he couldn’t separately identify what he paid for that particular book.
In fact, he would have paid £750 for the collection whether or not the railway book was included.
What would Taxation readers advise?
Query 20,415– Engine Driver.
Would UK/Canadian tax relief reduce beneficiary’s tax?
A friend has asked for advice in respect of an estate for which she is acting as executrix. I had to pass, because I am not competent to help professionally, but I wonder what the answer is.
Her father’s estate included UK and Canadian shares. She has paid UK income tax at 8.75% on the UK dividends – say £87.50 on £1,000 – but no UK tax on the Canadian dividends of £425, because Canadian tax had been paid at 15% (£500 gross).
When she pays the £425 to the beneficiary, what does she put on the form R185, and what does the beneficiary put on the tax return?
I feel that the double tax relief should reduce the beneficiary’s liability, but I fear that the paperwork may be complicated.
What do readers think?
Query 20,416 – Moose.
Is late exit from cash accounting scheme a problem?
I recently reviewed the accounts of a client whose main activity is to provide educational services. The business is profit making so all income is standard rated. My questions are as follows:
- The company has been setting off the tutor expenses against sales and showing the net figures as ‘commission receivable’ in the profit and loss account. I would like to include both the gross sales and cost of sales figures separately but am concerned this might create a VAT query from HMRC when the next accounts are filed for corporation tax purposes. Are my concerns justified? The client accounts for output tax on the gross sales figure because it has contracts with the students.
- The company is currently on a ‘cash accounting’ basis for VAT purposes. Based on the above, and the sales figure being relevant for VAT purposes and not the margin, the company should have come off the scheme at least five years ago because its annual sales exceeded £1.6m. My understanding is that when you come off the scheme, you need to pay the VAT on any outstanding sales invoices less VAT to claim back on outstanding supplier invoices. Is this correct? Do we need to go back retrospectively for five years and make an error correction to HMRC? My guess is ‘no’ because there is no underpaid tax here, only timing differences.
Readers’ thoughts would be appreciated.
Query 20,417 – The Teacher.
What is the maximum tax-free amount?
My client started a defined contribution pension ten years ago when he turned 55. As it was a guaranteed annuity, he took the maximum income and no lump sum; the company said it used 10% of his lifetime allowance. He is now about to cash in his remaining DC pensions, which amount to more than £1.4m.
As the LTA charge has been abolished, but he has never taken a lump sum before, does that 10% reduce his maximum tax-free amount? I suspect it still does, but I would like to have chapter and verse to be sure. This is, of course, subject to changes in the Budget, but it would be helpful to understand the rules.
Query 20,418– Minted.
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