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Travel expense conundrum.
Something I have not seen before has come up on a recent PAYE inspection and I would like to get the benefit of readers’ views before I go back to my client.
HMRC has been checking business mileage claims and has noticed that one employee has been basing his claims on consistently higher mileage than other employees who have been travelling to the same or similar destinations.
HMRC is suggesting that these claims are inflated and hence include an element of taxable private mileage.
It turns out that the individual concerned is a very nervous driver and, for this reason, he is trying to avoid motorways and other busy roads when travelling on business. As a result he is often going the long way round to get to the destination. There’s absolutely no suggestion that he is doing this for any private purposes en route – he genuinely is a nervous driver and this results in the higher mileage claims.
Do Taxation readers agree that the mileage in this scenario is still business mileage, even though the route taken was not the most direct?
Query 20,139 – Nervous.
When is a cessation not a cessation?
A client has come up with an interesting question on overlap relief.
He has carried on a business for many years operating a shop which does a mainly seasonal trade but which operates all year.
He has a significant amount of overlap relief. Overlap can be used on a cessation and he has suggested that if he shuts his shop over the winter months he could claim to have ceased to trade and thus make use of the overlap relief. He would be better off in net terms if he did that, as the tax saving would outweigh the minimal amount of income he earns in the winter. He could then reopen the shop in the spring.
Do readers see any problems with this – is there a danger that HMRC would say that the business had not really ceased, even though the shop would have closed its doors for several months and not sold anything?
Query 20,140 – Holiday maker.
Deferred consideration.
I am advising a client on the sale of her company – the details are not fixed but it is very likely that the deal will be for a mixture of cash on day one and a further instalment of cash 18 to 24 months later.
I am trying to get my head around the various ways that deferred consideration is taxed.
I’m clear that if the sale is for, say, £1m upfront and £1m in 24 months’ time, the whole of the £2m is taxed upfront. Equally I am clear that if the sale is for £1m upfront and a further payment after 18 months of 10% of the profits earned in the first year after the sale we are in Marren v Ingles territory and the value of the right to receive further consideration is taxed upfront.
But what about a mixture of the two – a deal with £1m upfront with a further payment in 18 months’ time of (say) £500,000 plus 5% of the profits of the first year post sale?
Is the £500,000 payment taxed upfront or does it form part of the Marren v Ingles calculation?
If the latter, it would be discounted for lack of certainty and the time value of money.
Have readers come across this situation before and, if so, can you share your experiences?
Query 20,141 – Quintus Fabius.
Tax point rules and VAT registration.
I act for a client who has his own limited company – A Ltd – which is not registered for VAT.
He has been doing some project management work for a good friend who has his own company, B Ltd. The latter company is involved in several property projects.
My client’s friend agreed that A Ltd could raise an invoice for £50,000 to B Ltd in June 2021 for ‘work done so far’ – which was paid in October 2021.
The second fee of £60,000 was paid to my client in April 2022 but he did not issue an invoice to his friend until June 2022. This was because it kept his invoiced sales below £85,000 for the year ended 31 May 2022. A Ltd has received no other income since it was incorporated apart from the final fee of £40,000 from B Ltd, which was invoiced and paid in August 2022.
As I understand it, the £85,000 registration test is based on invoiced sales of a business because this is when the goods are supplied and services are performed but has the prepayment of £60,000 caused a problem?
It is unusual for fees to be paid in advance of an invoice being raised but the friendship between the directors made this possible.
I am not sure if it is relevant but B Ltd is not registered for VAT because its property income is exempt from VAT.
My question is whether A Ltd has a registration problem here?
Readers’ thoughts would be appreciated.
Query 20,142 – Juggler.
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