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Duty to notify HMRC that disposal loss was to brother?
My client disposed of some shares at a loss in 2012-13. A calculation of the loss was included in his return for that year. No enquiry was opened.
The loss was carried forward each year until 2021-22 when it was used to offset a gain on the disposal of a property. HMRC opened an enquiry into the 2021-22 tax return and, after considerable correspondence, has agreed with the computation of the gain as submitted. However, before closing the enquiry HMRC has now started to ask questions about the 2012-13 capital loss including details of who the shares were sold to. I have had a brief conversation with my client and he has now informed me, for the first time, that the 2012-13 disposal was to his brother. It is thus a connected person’s loss and can’t be set against the gain on the property disposal.
Does HMRC, first of all, have the right to enquire into the loss now, given that it didn’t do so when it was returned? Secondly, even if there is no such right, is there still an obligation to notify HMRC that the loss was on a disposal to a connected person? While it might be argued that my client was careless in not declaring that the disposal was to a connected person I don’t think that it was deliberate behaviour on his part. Or does that not matter given that that it is the 2021-22 return that is under enquiry? I have to confess I am a bit confused about the operation of time limits and enquiry powers.
Query 20,335 – Perplexed.
Advantages of company or limited liability partnership.
My clients are two qualified electricians and plumbers who have worked in partnership for many years. Previously, they tended to undertake work in domestic premises for private individuals so the value of individual contracts was relatively small. In the past few months, they have started to work for some larger building businesses carrying out work on high value properties and some business premises.
They have taken on some employees and are becoming concerned at the potential risks, both financial and professional, that their business may become liable for if things go wrong. They are considering incorporation, but before doing this I am wondering whether I should consider a limited liability partnership (LLP) as an alternative.
Could Taxation readers summarise the advantages or disadvantages to either a limited company or LLP in this situation? Not only am I thinking about the tax implications on the transfer of the business at the start and the ongoing treatment during future trading, but on cessation. My clients are perhaps ten to 15 years away from retirement. Are there any differences we should be aware of if they want to sell their business at that time, perhaps to an employee or a third party?
I would be grateful for any information.
Query 20,336 – Sparks.
Is there VAT on demolition services?
My client has purchased a derelict pub and has planning permission to demolish the building completely and build a block of six flats on three floors ie, new dwellings.
Our intention was to appoint contractor A to carry out the demolition and building work as a single contract. However, contractor B has produced a more competitive tender for the demolition work, so we have awarded that part of the contract to this business. However, the director of B says that his company must charge VAT at 20% on the demolition work because it is not doing any subsequent building work. The director of A has confirmed that zero rating would apply to the full contract of demolition and build.
This difference in the VAT treatment does not seem correct to me – the same demolition work is being done but A will zero-rate and B will charge 20% VAT. My client does not want to incorrectly pay VAT to B in case HMRC blocks his input tax claim. What do readers think?
Query 20,337 – Speculator.
Is VAT due on customer incentive discount?
One of my clients trades as a high-end florist and is registered for VAT.
If an existing customer recommends her business to their friends, colleagues and relatives, and the new customer makes the contact known at the time and they place their first order with my client, then she will give the existing customer £20 off their next order of flowers for each new introduction. By way of example, if the original order was £150 then: £150 order – less three successful leads (which means a £60 discount) = £90 sale including VAT ie, output tax is £15.
The above arrangement seems straightforward for VAT purposes but a colleague tells me that the £60 is not a discount but a non-monetary consideration from the existing customer ie, output tax is £25 on the deal for my client, based on £150 x 1/6.
What do readers think? As this incentive scheme is an important part of my client’s business – and has been in operation for five years – the numbers are significant.
Most of her customers are private individuals who cannot claim input tax.
Query 20,338 – Daisy Rose.
Queries and replies
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