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Share valuation
Calculating the value on a share disposal to employee.
I am considering the possible share value for 24% of the ordinary shares in a very small company owned and managed by a husband and wife.
It is a publishing company with turnover of about £400,000 a year. The company does not own any property or non-trading assets.
The husband and wife are considering gifting or selling shares to a key employee. I therefore need to estimate a market value that would be acceptable to HMRC.
The main facts are:
- retained profits are £140,000;
- the director/shareholders have been taking low salaries, plus dividends. Average profits after tax have been £40,000. However, if fair salaries were included for the directors there would have been losses. On this basis I would conclude that maintainable profits are nil.
Using an earnings basis to value the shares, it would seem that the share value would be negligible because there are no maintainable profits.
Would HMRC accept this simple conclusion or would an adjustment be needed for the retained profits of £140,000?
I look forward to hearing from readers.
Query 19,823– Seagull.
Health benefit
Is a health care cash plan a non-taxable benefit?
My client is a large employer of around 400 staff that is proposing to provide a health care cash plan as a benefit to its employees in reclaiming some of the costs in connection with various health treatments.
As well as providing this benefit to staff, my client believes it could also be used in any future job vacancy adverts as an additional perk for anyone joining the company.
I do not believe it would qualify as a trivial benefit because there is certainly a cash value attached. But it is not a health insurance plan so presumably it would be a non-contractual benefit that can be withdrawn at any time in the future?
My client is convinced that this benefit would be non-taxable, but I am not sure and would welcome any views from readers.
Query 19,824 – Will.
Dividend date
Dividends to clear overdrawn directors’ loan accounts.
Last year I purchased a block of clients from another local accountant who had recently retired.
The practice was generally well run, and I have no concerns about the quality of the work which was done, other than in one regard, which is starting to worry me.
He seems to have taken a relaxed attitude to the use of dividends to clear overdrawn directors’ loan accounts. I have seen several cases where the dividend clearly was not processed until well after nine months from the year end but was nonetheless used to clear the loan account and stop a s 455 charge.
Going forward I am obviously going to do things properly but what are my, and my clients’, obligations about the past dealing in this matter?
Untangling all of this could take a huge amount of time, because loan accounts would have to be rewritten to reflect the true date on which dividends were paid.
I suspect that in most cases the result would be that there would be interest charges but little if any additional tax to pay.
I am sure that this is not the first time that this has happened after a practice has been sold. Do readers have any practical suggestions of what I can do to stop this turning into a nightmare?
Query 19,825 – Insomniac.
VAT rate
Error made with the 12.5% VAT rate.
I read Neil Warren’s recent article in Taxation (‘Fourth rate’, 26 August 2021, page 14) about the new 12.5% rate which took effect for most supplies made by the hospitality industry from 1 October, to replace the 5% rate.
I have realised that I wrongly advised a sports club client back in the summer which is having a social event in November for which ticket sales are £50 plus VAT per person. My client charged 12.5% VAT on all payments for tickets in August and September, ie £56.25 per person.
I now realise that he should only have charged 5% because of the absence of anti-forestalling legislation, ie normal tax point rules apply.
My question is simple: can my client account for 5% VAT on his September return, ie £56.25 x 1/21 per ticket? Or should he declare 12.5% VAT, even though the rate didn’t exist until 1 October, on the basis that this rate has been charged to the advance payers?
Readers’ thoughts would be appreciated.
Query 19,826 – Showtime Charlie.
