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Super deduction
Claiming super deduction on new machinery.
My client has been in an engineering business for several years and has now decided to expand by acquiring new plant and machinery, some of which will be paid for immediately and some six months later.
He already has a number of businesses and has a significant number of assets in the short-life assets pool.
A friend has suggested that the enhanced first year allowance of 50% might be a better idea than the super deduction, as there may be a disadvantage to using the this scheme if he disposes of the plant and machinery in the future, because the asset will not go into the capital allowance pool and will give rise to a balancing charge on disposal. By then, the rate of corporation tax is predicted to rise to 25%.
In addition to this, he has plans to make a sizable investment on an extensive upgrade of the old IT equipment so that he can trade more efficiently.
What do readers think is the best approach?
Query 19,791 – Puzzled.
Reporting requirements
Reporting on rental profits of non-UK company.
My client is a non-UK company receiving UK rental income. The company has no permanent establishment or branch in the UK, and its UK income is rental income. I have never prepared full accounts for the property business, just a profit and loss statement.
From 6 April 2020 the company is required to report the UK rental profits on a corporation tax return and pay corporation tax on them. My question relates to what information needs to be submitted with the tax return.
FA 1998, Sch 18 para 3 covers the requirement to deliver a return, and says that ‘different information, accounts, statements and reports may be required from different descriptions of company’.
HMRC guidance says that ‘in cases where a UK property business balance sheet is not prepared, the P&L account will generally form part of the corporation tax computations. In such a case, there will be no UK property business accounts to be filed as part of the return. Worldwide balance sheet and P&L to be included as a PDF file’. This was also confirmed by HMRC in their agent forum.
Can readers confirm whether there is a legal requirement to submit the worldwide balance sheet and P&L, and if so, the relevant legislation? I cannot see that it is required by para 3, because this calls for documents which are ‘relevant to the tax liability of the company’, and the worldwide business of the company is surely not relevant to its UK tax liability?
Query 19,792 – Adviser.
Capital distribution
Tax treatment of a property company distribution.
My client has a property company that owns four ex-local authority buy to let flats in London. He also owns another ten properties personally.
He is thinking of winding up the company, selling two of the properties and transferring the other two into his own name by way of dividend. He would then have 12 properties in his own name that he will continue to rent.
After distributing the cash to himself he would have two properties with a value of about £900,000 and £650,000 in cash. Therefore, he will have had a distribution of £1,550,000.
I have the following questions:
- If he uses a members’ voluntary liquidation, how would this distribution of £1,550,000 be taxed?
- If the company sells all four flats and then buys flats as holiday lets will it have changed its trade and the distribution treated as qualifying for business asset disposal relief?
I look forward to hearing from readers.
Query 19,793 – Confused.
Farm buildings
Is there VAT on farm buildings left by tenant?
We act for a farming company, which has rented out a big parcel of land to another farmer for 20 years.
The tenant is now leaving and has paid VAT on his rent all this time, ie my client has opted to tax the land in question.
During his period of occupation, the tenant has constructed several buildings on the land, which he probably should not have done, but they were necessary for his farming activities. My client has agreed that the buildings will remain after the tenancy and the company will compensate the tenant £60,000 for them.
Should the tenant invoice my client for the buildings? If so, should he charge VAT? And, if the answer is yes to the second question, can my client claim input tax of £12,000 on the company’s next VAT return?
I look forward to finding out what readers think about this.
Query 19,794 – Farmer.
