New queries: 18 April 2019

Research required

Allocation of research and development tax credits

My client is a large company which pays corporation tax in quarterly instalments. It has made a claim for research and development tax credits under the research and development expenditure credit (RDEC) scheme.

I am looking at the company’s cash flow position and I would appreciate readers’ views on the way this is affected by the interaction between the two sets of provisions.

My interpretation is that the first step is to set the quarterly instalment payments of corporation tax against the final liability and then to allocate the RDEC. If this is the case, what happens, as in my case, if the RDEC amount exceeds the remaining corporation tax liability? Is the repayment of the RDEC subject to the seven steps set out at CTA 2009, s 104N (including the PAYE/National Insurance contributions cap)? If this is the case there would be an adverse cashflow effect because the RDEC repayment would be delayed. Is my client not going to get its cash as early as it expects?

I look forward to the thoughts of Taxation readers.

Query 19,355– Researcher.

Residence raffle

Entitlement to tax relief when a property is raffled.

My husband and wife clients own a house that has been on sale for more than a year and they are starting to despair of it being sold. At present, they are renting and need the sale proceeds to buy a new property, having had to move for their work.

They told me that they had seen a property that is being raffled and are wondering whether they could do the same. They are taking advice on the legal aspects, but have asked me for the tax implications. I have never dealt with anything like this and wonder whether Taxation readers can advise.

The online raffle I have seen says that if a minimum number of tickets is not sold, there will be a cash prize instead of the property. However, if the minimum number is sold, the total receipts appear to exceed the market value of the house. I appreciate there will be costs in arranging the raffle and associated sale expenses, but how is this treated for tax purposes?

First, is the amount equivalent to the value of the property related to its sale or does it relate to running a raffle? If the second, will there be entitlement to only or main residence relief in respect of the gain? And how will any excess over the value of the property be dealt with, or does it all relate to the sale? I am assuming, of course, that we are dealing with a capital gain rather than a trading activity.

I can see that this could be an effective way of disposing of a property, but the more I think about it the more confusing the tax aspects appear.

I look forward to replies.

Query 19,356– Van Eyck.

Sale of assets

Mitigating the tax on disposal of an industrial estate.

My clients, a husband and wife, have owned the freehold of a small industrial estate for a number of years in their joint names. The estate consists of several units let to small businesses.

Because of their age and failing health, the couple want to dispose of the investment as a going concern with or without outline planning permission for private dwellings. Without planning permission, the property is valued at about £1.5m and with planning permission it would be worth about £2.5m.

Incidentally, in case it is relevant, the clients have two grown-up children.

Obviously, the capital gains liability is going to be substantial and will be aggravated by the fact that a claim for capital gains tax entrepreneur’s allowance will not be possible because the estate will be classed as an investment rather than a business.

I would be obliged if readers could recommend ways of mitigating the liability, if this is possible.

Query 19,357– Hopeful.

Cutting their losses

VAT liability of a payment to vacate a business property.

We act for a company that runs a business from a property owned personally by the three directors. There is no lease in place and no rent has been paid to the directors since the directors purchased the freehold in 2014. The company has not been successful and has lost money so the directors have decided that it should stop trading.

They have been approached to move out of the premises so that the property can be let to another local company. The deal agreed is that the other company is going to pay the loss-making company £50,000 to move out and then sign a lease with the directors for the ongoing rent.

We are concerned about the VAT liability of the £50,000 to be paid to the company. Should this add VAT because the trading company is VAT-registered or can we treat it as outside the scope of VAT because there is no supply to the company (as far as I can see) although it is giving up the right to occupy. The company has not opted to tax the building, so could it be exempt?

I guess that VAT is probably not a problem because the new tenant is a manufacturing business so can claim input tax anyway.

Readers’ thoughts would be welcome.

Query 19,358– Landlord.

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