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Dividend rights
Dividend treatment on shareholding arrangement.
I know this issue must have cropped up many times before but I am never sure that I have got to the bottom of it.
My client company has two 50-50 shareholders Janet and Jane. They are in a long-term relationship but are not married or in a civil partnership. Janet works full time in the business – Jane does a few bits of administration but is not generally involved and has caring responsibilities. They operate a standard model with minimal salary and dividends.
How vulnerable is this structure to attack by HMRC on the basis that Janet should be taxed on all of the dividends? Obviously, this bears similarities to the Arctic Systems case, but there the special rules for husband and wife came to the taxpayers’ rescue. Those rules do not apply here of course so is there a problem in this particular situation?
I am interested in the technical position of course but more concerned about the practical realities of whether or not readers have seen HMRC challenge these sorts of shareholding arrangements where the shareholders are not married.
I look forward to receiving feedback from readers.
Query 19,903 – Worrier.
Opting to tax
VAT considerations with extra phone mast income.
I act for a client who is buying the freehold of a block of flats, which will earn ground rent income from the eighty leaseholders in the block.
Our original thinking was that the land sale would be exempt from VAT but the sellers have put a spanner in the works and said that we must opt to tax the land with HMRC before completion otherwise they will have to charge 20% VAT.
This is because a second source of income is for the rent of a telephone mast at the top of the building. The rent is paid by a telecommunications company and is about 25% of the ground rent income earned from the leaseholders. The seller opted to tax the land and charges VAT on the mast income but not the ground rent charged to the leaseholders.
Presumably my client can avoid a VAT charge by also opting to tax the land before completion, and then a TOGC outcome will apply. So, either way, there is no VAT charged on the land sale, which is the result we want.
As a separate question, should our option to election with HMRC be made before exchange of contracts rather than by the completion date? My client will pay 10% of the selling proceeds on this date and the 90% balance one month later on the completion date.
Readers’ thoughts would be appreciated.
Query 19,904 – Ruth.
SDLT opportunity?
Transferring properties into pension schemes.
Some of my clients who have recently transferred properties into pension schemes and paid SDLT have been approached by firms, or have done research on the internet, to suggest that SDLT is not always payable on such transfers (whether or not the transfer was for cash or in specie) and that a refund is due. This is apparently on the basis that many of these transfers are between connected parties and therefore that relief is available.
I am not an SDLT expert but I am very conscious that there have been a number of tribunal cases where SDLT refund claims have been rejected. Although those are not, as far as I can see, concerned with pensions I am nervous that the SDLT refund industry does have, in parts, rather a poor reputation among some advisers. But equally I don’t want my clients to miss out on genuine tax saving opportunities.
While it would not be me making any refund claims I would be grateful for any advice that readers can give me about what I should be saying to my clients about the possible risks and what questions I should be asking of the advisers if I am asked by my clients to talk directly to them.
Query 19,905 – Cautious.
German VAT
VAT challenges for goods processed in Germany.
I act for a client based in the UK, which manufactures and then sells paper products. The business has a lot of EU business customers.
For one particular contract, for a customer in Germany, my client will send the paper from the UK to a warehouse in Germany to a separate supplier based there. The supplier will then process the paper into smaller packs, known as a ‘processing service’, and deliver it to the final customer. So, for example, we would normally charge £10,000 for the paper in its original state – the supplier will charge us £5,000 for the extra work – and we will mark-up this payment by 50% to charge the final customer in Germany £17,500 in total. All figures exclude VAT.
What do we do as far as both UK and German VAT is concerned? Readers’ thoughts would be appreciated.
Query 19,906 – Paper Pat.
