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Safety first
Reporting and tax for a community interest company.
Following safety concerns raised by residents of a local community, it was decided to set up a CCTV system with some fencing surrounding the perimeter of the neighbourhood.
Having considered the compliance burden of running a charity, my clients were advised to use a not-for-profit community interest company (CIC) which was set up after confirmation by the Registrar that the criteria had been met.
It is expected that, in the course of the coming year, the CIC would spend £100,000 on the neighbourhood security project (to include local authority planning costs, legal and consultancy fees and equipment). This will be funded by voluntary contributions made by residents.
The agent warned my clients that no tax relief would be available on contributions made into the CIC, and this was accepted given the modest contributions by each resident. The system requires monitoring and maintenance by the CIC at an annual cost estimated at £6,000.
The CIC is not expected to make a profit or loss overall, however when slicing this into accounting periods there may be a modest surplus of residents’ contributions over funds spent in a given period.
In its Company Taxation Manual at CTM40145, HMRC states: ‘A CIC is liable to corporation tax as a company’ and will be chargeable on ‘any trading profits (but it will be a question of fact whether or not a particular CIC is trading) and on its investment income and gains’.
How would Taxation readers view the position on the liability to corporation tax on any surplus funds and returning the relevant information to HMRC on a corporation tax return?
Query 19,647– Wormtail.
Property transfer
Calculating capital gains on transfer of property.
A couple helped the husband’s in-laws to buy an ex-council house in 1984. At that time, the rule was that the property could only be owned by the tenants so this would appear to rule out any dependent relative relief.
In 2003, the mother-in-law died and the father transferred the property to his son and daughter-in-law. I am told that the property was worth £175,000. The sum of £50,000 changed hands, but it was largely a gift.
The father-in-law continued to live there rent free until he died in 2011 and a license was drawn up to this effect when the property was transferred.
I have the following questions.
- Am I correct in that dependent relative relief is not available?
- Should the base cost be the value at the date of the transfer?
- If the market value was £175,000, should there be a discount factor for rent-free occupancy by the tenant. There was no sitting tenant at the date of the transfer because the transferor was the owner.
- There was no formal loan agreement for the property purchase money provided by the couple, but would this gift affect the transfer value?
The couple now want to gradually transfer the property to their son, but not all at once so there is no urgency regarding returns. Are there any issues with this plan?
Query 19,648– Adviser.
Sticking point?
Tax status of a charging point for electric car.
My client is about to lease a Polestar Fastback electric car through his company, which will be available to him as a company car. He will need a charging point at home, which he thinks will cost the company about £500 after government grants. The business has separate premises.
I understand that there is no additional benefit in kind charge when the charging point is provided by the employer in conjunction with a company car benefit. However, I am wondering what happens to the charging point at the end of two years if my client returns the company car.
The charge point remains the property of the company, so I am thinking that the 20% charge on the use of a company asset will apply to the charging point. I would consider the company should then transfer the charge point from the company to the director at its then market value, which I would expect to be minimal.
However, would the charging point be considered to have been provided as a benefit during the previous two years and therefore be subject to the modified value under ITEPA 2003, s 206?
Query 19,649– Electric.
Racehorse
Legal entity for claiming VAT on horse costs.
I act for a husband and wife partnership who own a dry-cleaning business that is registered for VAT.
Following a recent inheritance, the husband has now purchased a racing horse in his own name and I understand that, subject to him finding a sponsor, he can reclaim input tax on costs relating to the expenses of the racehorse. If so, can he use the existing VAT registration of the partnership to reclaim VAT and account for output tax on income or does he need a separate VAT registration in his own name?
If the partnership registration can be used, should he transfer the horse into joint names with his wife, so that it is in-line with the VAT registration? And are there any complications with this approach? He wasn’t charged VAT when he purchased the horse.
The clients would prefer just one VAT registration if this is possible.
Taxation readers’ thoughts would be much appreciated.
Query 19,650– Jockey.
