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Employee benefit trusts
Taxation of employee benefit trust arrangements.
I have been reading the report of Marlborough Ltd (TC8246) (see tinyurl.com/594dyax9). This seems to suggest that in an employee benefit trust arrangement (EBT) for an owner-managed business, the amounts contributed to the trust are taxable as distributions and not employment income. I still have clients with open EBT enquiries in similar situations, although not involving exactly the same structure as in that case.
Is there any mileage in running arguments based on Marlborough in my cases, particularly as HMRC would be out of time to assess the individuals on the dividend income?
I suspect that the answer is no, but I would still be interested to hear readers’ views.
Query 19,863 – Optimist.
Land transfer
Transferring a former business premises to a director.
My client is an owner-managed business. It owned a plot of land which was once the site of its business premises, but the company moved some time ago and demolished the buildings on the site. The land is no longer used for any purposes and is vacant. The 100% shareholder-director, who is also my client, has asked me about the tax implications of transferring it to him at no cost.
I have two questions. First, does this automatically trigger a benefit in kind charge on the director based on the market value of the land? But is there a case for saying that this is a distribution under CTA 2010, s 1000(1), para G? The income tax due would be less and there would be no National Insurance contributions. I always thought that the distribution charge took priority over the earnings charge, but PA Holdings makes me doubt this.
Second, what about the company’s position? If we assume that the land cost £100,000 and is now worth £300,000, there will be a capital gain of £200,000. But what about corporation tax relief? If the disposal is treated as a distribution no relief will be available. But if it is treated as a benefit in kind how much relief is due – nothing, on the basis the company has not incurred any additional cost, £100,000 on the basis that this was the original cost of the land; or £300,000 which is the amount of the taxable benefit?
This should be straightforward because such transactions must happen all the time, but the more I think about it the more confused I am.
Can readers help me out here?
Query 19,864 – Unsure.
Irish returns
Declaring euros on prepaid UK debit card on Irish tax return.
My client lives and works in Northern Ireland (NI) and is UK domiciled. He also owns a house in the Republic of Ireland where he stays on a regular basis.
He has a UK Revolut card that enables him to transfer money to a euro account held in UK. He pays for his bills in Ireland in euros using this card. He does not have any Irish bank accounts.
His income is derived from self-employment, employment and dividends that are all UK related. He is in the Republic of Ireland for more than 183 days a year (albeit he is also in NI for more than 183 days as well).
When completing his Irish tax return does he declare the money used on his UK euro revolut card as money being brought into Ireland? The amount involved is about £10,000 a year.
If so, am I correct in assuming there will be no Irish tax payable on this because UK tax has already been paid and that the only potential liability is pay related social insurance (PRSI) at about €500? Or is there an exemption from PRSI given that all National Insurance contributions are paid in the UK?
I look forward to hearing from readers.
Query 19,865 – Shamrock.
Building dilemma
VAT challenges for a joint venture business.
I act for a client that buys land and builds new dwellings to sell, usually apartments. The VAT issues are straightforward because the sales are zero-rated, so input tax is fully claimed on the expenses.
However, for one particular development, a different business model is being proposed. They will sell a plot of land they own to a joint venture (JV) business at the market rate – they will own 50% of this business.
My client will then do the building work for the JV to construct 20 apartments, invoicing the JV on a commercial basis. The JV will sell 12 apartments with long leases at the end of the project and then rent out the other eight apartments on a long term basis to tenants for use as their main residences.
Will the land sale create a partial exemption problem for my client? Should they perhaps opt to tax the land? And what are the VAT challenges for the JV? Should it register as an intending trader? If so, I guess it will be a partly exempt business as well. How should it apportion its input tax?
Query 19,866 – Speculator.
