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Should income from different trades be declared separately?
I’ve recently taken on a new sole trader client. He has fingers in a lot of pies. For instance, he runs a small shop, he does some landscape gardening, he writes articles for the trade press, he does occasional paid gigs as a drummer and he has a small piece of farmland on which he keeps a few pigs.
His previous accountant lumped all of these activities together in a single profit and loss account and has described the business as ‘general trader’. HMRC has never raised any queries on the accounts.
All of these are unrelated activities and, if looked at separately, some would make a profit and some would make a loss. But, by treating everything as a single source, the previous accountant has effectively set off losses against profits without making any formal claims. What is my position? Can I continue to prepare a single set of accounts for all of the activities, or do I have to prepare separate accounts for each one and make loss claims accordingly? If the latter, do I have to advise the client to make any disclosure for past years?
The client is VAT-registered and obviously all of the activities are treated together for VAT purposes.
Query 20,387– Purist.
Tax treatment of incentive upfront payment.
One of my client companies has a real problem with staff retention in his industry. He has been discussing with me some ideas to encourage staff to stay. One of those would be to offer new staff an upfront sum of money which they have to repay if they leave within two years.
He is taking employment law advice on this but has asked me about the tax treatment of this payment. Could this be structured as a loan so that there is no upfront tax charge? If the employee then stays for the two years, the loan would be waived and there would be a tax charge at that point.
Alternatively, would this be taxable upfront as PAYE remuneration – in which case: what would happen if the employee left within two years and had to pay the money back?
This may all be more trouble than it is worth, but I’d welcome views from Taxation readers as to whether there is something here which could be looked at in more detail.
Query 20,388 – Retainer.
What is the basis of the legal obligation to disclose errors?
I’m confused about the legal obligation to disclose pasts errors, and I am hoping that readers can point me in the right direction.
FA 2017 introduced legislation requiring a person to correct past non-compliance in relation to offshore matters or face a penalty. Parliament introduced legislation to change the law so it would seem that, before FA 2017, there was no general obligation to correct non-compliance and that now there is only an obligation to correct non-compliance in relation to offshore matters.
Under self assessment there is, in any case, no mechanism to adjust a return after the enquiry time limit has expired. Yet the professional bodies have always made it clear (see PCRT help sheet 3) that there is an obligation to disclose past errors to HMRC. What is the basis for the advice in PCRT? I should add that I completely endorse the PCRT as a matter of practice but I have always wondered exactly what its legal basis is. Can your readers put my mind at rest? Query 20,389 – Curious.
Was credit note issued correctly for VAT purposes?
I act for a builder who did some work on the private residence of an elderly person, charging £80,000 plus VAT in 2022; he received full payment in advance because the job included a lot of materials and my client did not have sufficient cash flow to buy the materials before receiving payment.
The job did not progress as expected and his customer was disappointed with the quality of the work and materials, so my client agreed to make a refund of £20,000 plus VAT and issued a credit note. However, his customer subsequently died before he could pay the refund and there has been no contact since then from the estate of the deceased person or any other relative, etc.
My client’s view is that he did everything properly and would still repay £24,000 to the estate of his customer if asked but I wonder if he was correct to reduce his output tax by £4,000 in 2022 when he issued the credit note, on the basis that he did not refund the customer at the time?
Readers’ thoughts would be appreciated. Query 20,390 – Bodgit.
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