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Partnership dilemma
Allocating profits on a partnership return.
I act for clients A B and C who are in partnership and have an engagement to complete the partnership return and the three individual returns.
There is no written partnership agreement but each year the partners have agreed their respective profit shares between them without difficulty. However, for 2020-21, the partners have failed to agree on a profit split.
Both A and B think that C has not been pulling his weight and they want to allocate a lower share to him than he believes is due. There is a complete impasse at the moment and the deadline for the return is approaching fast.
There are no problems with the partnership accounts as such – just the question of allocation of profits. What can I do in this situation? In the absence of an agreement do I have to fall back on the basic partnership act assumption that profits are divided equally? That would leave all three of them unhappy.
Any advice from readers would be much appreciated.
Query 19,887 – Solomon.
Holiday lets
Planning permission and VAT issues on barn conversion.
One of our clients has got planning permission to convert a big barn he owns in his garden into a residential property. However, the planning consent says that it can only be occupied by a person for a maximum period of eight weeks. The barn must therefore be used for furnished holiday lets.
The client is appealing the planning decision. He is seeking to get full residential status so that the property can be rented out on a buy-to-let basis. However, some building work has already started, with trunking and pipework being laid to facilitate a power and water supply.
I have looked at HMRC’s VAT notices and am confused on three of the following issues:
- Can the 5% VAT rate apply to building work and materials provided by builders as part of their work or is the eight-week stay period a problem?
- Presumably my client can voluntarily register for VAT and claim input tax on the conversion costs because the letting income will be taxable? And can he deregister once the work is completed because annual income will be less than £83,000? The barn will be the only income for the entity that owns the barn.
- What happens if planning permission is subsequently amended to allow a buy-to-let outcome? Will this affect the VAT registration as rent will be exempt from VAT?
It seems very confusing, so any assistance given by readers would be appreciated.
Query 19,888 – Barney.
PPI
Tax on interest on payment protection insurance.
I have started to see emails and texts from payment protection insurance (PPI) claims companies and have received some myself saying that there is another opportunity for a reclaim.
This is because the PPI compensation which has already been paid included an interest element on which tax was deducted at source. In many cases the amount of interest would be less than the personal savings allowance and/ or the starting rate for savings.
Have other readers had experience of these communications? Where the recipient is in self assessment surely it is possible to obtain the refund by including the interest, and the tax deducted at source, with the return in the normal way without the claims company taking a large share of the refund?
I look forward to hearing from readers.
Query 19,889 – Optimist.
Conveyancy bill
Post-deregistration VAT claim.
I act for a sole trader client that ceased to trade on 30 November 2021. He sold his trading property on that date for £150,000, which was exempt from VAT because there was no option to tax election in place.
My client’s business as a printer was fully taxable. We deregistered the business for VAT on 30 November 2021, to coincide with the final day of trading.
The conveyancing bill for the property sale was issued by the solicitor on 7 December 2021, for £2,000 plus VAT. We submitted form VAT427 to HMRC to reclaim this VAT but the officer has rejected it because the expense relates to an exempt supply.
Our view is that the VAT should be claimable because of the partial exemption de minimis rules on the basis that this VAT of £400 is less than both 50% of input tax claimed by the business in the previous 12 months and also less than £625 for the month in question.
What do readers think? If HMRC is correct, it seems like a very unfair decision.
Query 19,890 – Printer.
