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Repayment claim check
HMRC’s enquiry of agent in respect of client SA return.
About ten years ago I acted for a subcontractor in the building industry who was subject to deductions under the construction industry scheme (CIS).
My appointment was short lived because he made various comments on the size of his tax repayment and my professional ability. However, I must still be registered as his agent because I have just received a long letter from HMRC’s ‘Indv and Small Business Compliance Complex and Agents’ office.
The letter acknowledges receipt of a self-assessment repayment claim and says: ‘As part of our security procedures we verify a number of returns to make sure that the repayment amount claimed is correct. This is not a check into your self-assessment return under [TMA 1970] s 9A.’ However, it does add later: ‘I will be checking your ... tax records for 2020.’
The letter starts by going through the standard money laundering questions that we are all familiar with, and then progresses to asking who submitted the return and, if an agent was involved, who they were, and how they were remunerated – whether it was a fixed fee or a percentage of the repayment.
The questions become somewhat strange when they ask whether the agent had requested ‘your records so they could submit your return’. I also wondered about the statement: ‘This is not a check into your self-assessment return under s 9A’. This begs the question under what is the return being questioned – the Police and Criminal Evidence Act 1984 (PACE) perhaps?
As I have not encountered this before I wondered whether readers have any advice on how to deal with such a letter.
Query 19,707 – Knyperman.
For letters, please see here.
Allowable expenses
Coffee machine used for homeworking.
My client is the sole director of a consultancy company and works from his home office. He would like to buy a coffee machine and I understand that this will cost about £400.
Since he is working from home, I wondered whether he would be able to claim this as an allowable expense? Can he also claim for the coffee beans to be used in the coffee machine?
Would it make any difference if he claimed the cost personally and was reimbursed by the company for, first, the machine and then the beans on an ongoing basis or would it be better if the company paid these costs?
I also started to wonder whether the tax and National Insurance outcomes might be any different if my client was self-employed and claimed these costs as business expenses.
I looked forward to receiving clarification from Taxation readers.
Query 19,708 – Homeworker.
Business assets transfer
Tax consequences on the transfer of business assets.
My client is a self-employed local builder and he has managed to keep operations going reasonably well during the coronavirus pandemic.
He carries out work for private individuals and subcontracts for larger building firms. He owns a building yard and some reasonably expensive specialist equipment.
Given financial uncertainties and his increasing reliance on other companies for work, he asked whether he could protect his capital assets. It did occur to me that he could transfer the yard and plant and machinery to his wife – who at present simply assists with bookkeeping and the like. I thought he could then pay her a rent and hire charge. This might help to even up their incomes a little and reduce tax.
The alternative would be to form a limited company to hold these assets, perhaps again with the involvement of his wife.
Other than whether this plan would be a good idea, my immediate concern is possible capital gains tax or income tax on the transfer of these assets.
In the longer term, would there be potential adverse tax consequences when the business is sold or transferred to children on his retirement?
I look forward to hearing from readers on this subject.
Query 19,709 – Bob.
VAT errors
Replacement sales invoices to correct VAT errors.
My client is a printer and it has come to light that he has been charging VAT for the past six years to an undertaker for their advertising brochures. The brochures should be zero rated as printed matter – the undertaker only claims 50% input tax apparently, so the VAT overcharge is important.
We have agreed that the client will repay all VAT incorrectly charged for the past four years, which is £38,000. Am I correct in saying that I should submit a VAT652 to HMRC because the errors exceed £10,000?
The undertaker has asked me to issue replacement VAT invoices for every incorrect invoice issued in the past four years, backdated to the original invoice date. Is this correct – he has referred me to VAT Notice 700/45, paragraph 3.3?
Apparently, the undertaker’s accountant said that if it is done this way, he can just reduce his input tax by £19,000 on his next VAT return. In other words, he has not incorrectly claimed input tax on past VAT returns, which would require him to submit a VAT652 to HMRC as well.
Finally, I wonder whether my client needs to issue replacement invoices because I thought there was no obligation to issue VAT invoices for zero-rated supplies?
Taxation readers’ thoughts are welcomed.
Query 19,710 – Gutenberg.
