Tax implications of wearing and selling vintage clothing.
One of my clients has a shop selling ‘vintage’ decorative items for the home such as art prints, lights, coffee tables, vases, crockery, etc.
In her spare time, it appears that she is also a keen bargain hunter of vintage clothing which she acquires from friends, jumble sales, charity shops and the like. She tends to wear these at work because she thinks that this individual ‘image’ helps customers identify her with her shop as well as helping her to promote it. Are there any grounds for claiming a tax deduction for the cost of the clothing, perhaps on the basis that this is a uniform? I am aware of the Mallalieu v Drummond decision, but I have heard it suggested that this was wrongly decided.
Once she has worn the clothes a few times they tend to go to the back of the wardrobe, and she tells me that she is now considering selling them in the shop. If it is felt that no tax deduction would be available for the clothes as uniform, what cost should be put on the clothes when they go on a ‘for sale’ rack in the shop? Would this be the amount she paid for them in a personal capacity or a figure she considers to be their real value from a selling point of view, which might of course be higher thereby reducing the taxable profit?
I would welcome Taxation readers’ thoughts.
Query 20,483 – Biba.
What is the UK SDLT consequence of house sale?
My clients have owned their house in equal shares since they bought it in 1997. It is subject to a mortgage, also in joint names, of £190,000. They now wish to pay off the mortgage but, because the wife is an American citizen, this will apparently trigger a capital gains tax charge in America based on exchange rate movements.
If she gives her share of the house to the husband before the repayment, this is reportable in the US but creates no tax charge. But what is the UK stamp duty land tax consequence? Will he be treated as ‘buying’ her share for £95,000, and if so is there SDLT on that? They have no other property interests.
Query 20,484 – Yankee Doodle.
What is the VAT position on reissued invoices?
I am hoping readers can help me with a query I had last week from a law firm client of ours.
The law firm does quite a bit of employment law and has a situation whereby it represented an individual who it invoiced monthly and who settled the invoices monthly.
In the event, some 12 months on, the matter has completed in favour of the individual, and the result is that their previous employer must pay the settlement as well as the individual’s legal fees.
Before making this payment, the employer has asked our client to credit note the employee’s previous invoices and to reissue those to them. This is a request which, it tells me, often arises, however it is unsure if it is correct to do this.
I can understand the employer’s incentive to do this since it would effectively reduce the settlement amount by the VAT on the invoices, but to me it feels wrong as that VAT is chargeable to the individual and so should not be reinvoiced to the employer. This is especially because my client did not provide any service to the employer.
If, as they say, they receive this type of request quite often, I suppose it could be fairly common practice.
Query 20,485 – Cannes.
How is output tax declared on catering sales?
One of my clients trades as a VAT registered café and recently had a catering outlet at a music festival, selling a range of hot and cold food and drinks.
Somewhat surprisingly, my client had to use the till facilities of the event organiser. All sales were made by credit card and paid to the organiser and they paid my client 75% of the gross takings directly to her bank account, ie retaining a 25% commission themselves.
My client says there is no written contract with the event organiser – only an email about the 25% commission share, and she does not know if the organiser is VAT registered or otherwise. The organiser has said it does not issue VAT invoices.
My question is how my client should declare the takings on her VAT return? My view is that she should declare output tax on her 75% share of the takings, and also make a notional apportionment for some zero-rated sales, perhaps 10% to 15% of the takings, to reflect sales of cold food at the festival.
There were no tables and chairs linked to her outlet, so there was no consumption of food and drink on her premises. What do readers think of my suggestion?
Query 20,486 – Music Man.
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