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Keep trucking
Filing obligations following a group restructuring.
I have a client who operates in the road haulage sector. The business is highly competitive and the client is wary that his customers and competitors might find out how much profit the company is making.
A restructuring has occurred with a new offshore holding company now in place with two trading subsidiaries. The intention is to move central management costs into Holdco and to acquire a fleet of new vehicles into Holdco which will then be leased to the two trading companies at a profit. This will reduce the subsidiary company profits and increase the Holdco profits by the same amount.
Holdco is registered for UK corporation tax so there is no loss to HMRC. Importantly, however, Holdco has no accounts filing obligations offshore so customers and competitors cannot work out the true group profit.
Can readers spot any flaws in this strategy where, for instance, deductions may not be allowed in the subsidiary but taxable in Holdco?
Query 19,403– Rubberduck.
Foreign property portfolio
Relief on German income tax for property losses.
My client, a UK resident and domiciled individual, bought a portfolio of residential properties in Germany in 2014.
Initially, he made losses due to higher than expected finance costs but he has recently sold some of the properties and made capital gains. He used the sale proceeds to repay debt so the portfolio is now profitable.
For German tax purposes the losses were fully offset against the capital gains (because Germany taxes short-term capital gains as income) so the client is now paying German income tax on the profits, but in the UK the losses are carried forward against future income from the properties.
The German tax year is the calendar year and payments on account are required during the year before the tax return is submitted.
My question for readers is how can the client obtain relief for the German tax paid? Credit relief is not available as he is not paying UK tax. Can he make a claim to expense it under TIOPA 2010, s 112? If so, when can relief be claimed given the differences in tax year and payment dates between the UK and Germany?
Query 19,404– Tycoon.
Farm partnership
Tax on farm which has diversified into liveries.
I read with interest ‘Readers’ forum: Goods for own use’ in Taxation (4 July), which concerned trading stock items that are taken for personal use. I would like to extend this query to trades where the exact goods being taken are more difficult to define.
I act for a client who owns a farm in partnership which has diversified into liveries. As is frequent in farming, the trading is carried out by brothers who do not always agree with each other and neither do their respective spouses.
One spouse of the partners runs the livery and has six private horses, with a number of young and retired horses. The brother with no horses considers this should be attributable to private use for the accounts and the tax returns.
The other brother argues that, because his wife pays for all the feed and haylage for her own horses, there is no private use. However, the other brother argues that, because they sell grass and stabling as livery, there should be some private use adjustment at market value to clarify both drawings and the tax computation and paying the correct tax to HMRC.
Use of fields and buildings are not as easy to define and there are a range of differing treatments in the farming/equine industry which support both both brothers’ respective arguments, but surely correct tax compliance has to prevail?
In addition, the brothers also have different attitudes to tax risk. The partner without any horses is very risk averse and tax compliant. Research has not provided any further clarity on this subject.
I suggested that I act only for the partnership and the partners seek independent advice but they continue to hold differing views. As the brothers are elderly and intend to pass the business element direct to their sons there are also inheritance tax consequences to warn the clients about.
Any feedback would be gratefully received.
Query 19,405– Hound Puppy.
Director
Reclaiming VAT on HP asset bought by director.
My client is a director who purchased an excavator, bought on hire purchase. I have the VAT invoice issued by the finance company but this shows the director’s name only.
My questions are as follows.
- Can a newly VAT registered business reclaim the VAT on this item?
- What are the other options to reclaim the VAT in this case?
- Should I register the director for VAT voluntarily, as he was trading as a sole trader before anyway?
- Is the sole trader allowed to invoice his own company, including VAT, as the revenue generated by the rental of the asset is invoiced by the company to the another contractor?
Query 19,406– Buyer.
