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Treatment of shares in ‘rescued’ company.
My client invested £100,000 in shares qualifying for enterprise investment scheme (EIS) two years ago.
The company did not do well and has now been ‘rescued’ by a takeover. My client has received new shares in exchange for his original holding: they are probably worth about £1,000.
I have two questions.
First, I know that the £30,000 income tax relief he obtained on the issue must be clawed back, but what is the procedure for that? The HMRC manual (VCM15140) says it must be assessed and cannot be included in the self-assessment system, but who do I report to in order to make that happen?
Second, can my client then claim a loss of £99,000 on the takeover, or is he required to carry forward a base cost of £100,000 until he disposes of the new holding?
Query 20,195 – Disappointed.
Will loan write off be taxed as a 'distribution’?
My client wants to use cash reserves in his own company to support a business being started by a company owned equally by his daughter and his son-in-law.
From previous queries, I understand that the loans to participators rules do not apply to a loan to a company, and my client’s company is ‘small’ so it is exempt from transfer pricing adjustments.
If the loan is irrecoverable, there will be no relief for the loss on the connected loan relationship, but the client does not mind that. The main tax risk appears to be the possibility that HMRC will regard the write-off of the loan (which is a possibility, although not the intention – the venture is intended to be commercial but is not certain to succeed) as a distribution and assess my client to income tax.
My question is, is there anything that can be done to reduce this risk? Does it make a difference if the loan is established on commercial terms, charging interest? And am I missing anything else that could go wrong?
Query 20,196 – Sugar Daddy.
Will training business need to register for VAT?
We act for a sole trader client who is not VAT registered but anticipates that his annual sales will exceed £85,000 at the end of next month. His business has three different activities:
- the provision of MIDAS courses (Minibus Driver Awareness Scheme) – whereby they teach school staff how to drive school minibuses;
- ongoing MIDAS driving assessments – ensuring that every four years those with the qualification are still eligible and meet the requirements;
- the provision of passenger assistance courses – teaching escorts how to safely travel with children/adults with special needs to or from school or college.
With regard to the passenger assistance courses, my client is engaged by the local council but invoices the individuals taking the course directly. The contract with the first two sources of income is directly with the schools.
One school has mentioned to my client that they are VAT exempt and that VAT should not be charged if my client registered for VAT but I have done some research and cannot find anything in HMRC’s guidance to confirm this is the case.
Do readers think that any of the three sources of income will be exempt from VAT, therefore averting the need for my client to register for VAT?
Query 20,197 – Teacher.
Is there VAT on property advice for overseas buyer?
One of my clients is a former estate agent and now does some freelance work giving advice about residential property.
He is registered for VAT as a sole trader and recently gave some general property advice for a wealthy private individual who lives in India.
His client wants to buy a UK property as an investment or perhaps a second home. The advice was not linked to any specific property, focusing on the best area of the UK to buy and whether the client should invest in a house or flat, etc.
My original thought was that the fee earned by my client should be standard rated because it is a land supply where the place of supply depends on where the land is based, ie within the UK. But I then decided that the work qualifies as a professional consultancy service – B2C – where the place of supply is where the customer is based, ie India, so no UK VAT should be charged.
Alternatively, if the Indian client confirms that he will rent out the UK property he buys, rather than use it for his personal enjoyment, does this make it a B2B supply and the potential doubt about whether his work is classed as a consultancy service becomes irrelevant, ie the place of supply is definitely India?
Readers’ thoughts would be appreciated.
Query 20,198 – Bombay Duck.
Queries and replies
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