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Could balancing allowance be restricted?
My client, who is a salesman, bought a car in late April 2022 for use in his business. It cost just over £22,000 and was suitable for his long journeys. In August 2022, following a bereavement, he was sadly obliged to use it as his family’s funeral car. After that, he felt he could not keep it, and sold it at a loss of just under £8,000.
I understand that high depreciation is not unusual in a Mercedes car of its type, but I wonder whether HMRC might take the view that because the sale was prompted by a purely personal motive, the balancing allowance should be restricted as arising partly from a non-business motive. I have not been able to find any regulations dealing with such a case.
What do Taxation readers think?
Query 20,179 – Wig Coat.
IHT implications of waiving dividend entitlement.
My client has a 50% share in a trading company – the remaining shares are owned by her son and daughter respectively. The company traditionally pays dividends at the end of September.
My client has approached me to say that she doesn’t need to take any further money out of the company this year and proposed to waive her entitlement to any dividend that is paid.
I’ve been trying to understand the IHT implications of this. I know that a dividend waiver is not a transfer of value if it is made more that 12 months before the right to the dividend has accrued. This will not be the case for a dividend in September this year as even if a waiver is made today it will not meet the 12-month limit. But what exactly are the IHT consequences? Say the total dividend was £200,000 and my client waives her entitlement to 50% (£100,000). Her son and daughter would still receive £50,000 each. So they would not have received any extra value because of their mother’s decision to waive her dividend. And the company will have an extra £100,000 because of the mother’s waiver, so there is no diminution in the value of the shares. So is there in fact any IHT issue here?
Most commentators refer to the need to put the waiver in place 12 months in advance but then don’t say anything about what happens if you don’t meet the 12-month requirement.
What do readers advise?
Query 20,180 – Confused.
Reducing payment on account mid-way through the year.
I have recently had a frustrating interaction with HMRC as they hadn’t processed my reduced payments on account for 2022-23 (as I am my own tax adviser, I am unrepresented). Despite referring the HMRC officer to the legislation (TMA 1970, s 59A) and to HMRC’s own guidance in Self Assessment: the legal framework SALF303, the officer insisted it was not possible to reduce the payments on account unless the tax return for the year has been filed.
This means that anyone who is due to pay a second payment on account in July 2023, and wants to reduce the payment, will be unable to unless they file their tax return before 31 July which is not always possible (and completely undermines the purpose of the legislation).
I submitted an SA303 claim to reduce the 2022-23 payments on account to nil online in June 2023. The claim then showed up almost immediately under track your forms online but with no change to the amount shown as becoming due on 31 July 2023.
On closer examination, I found that there were two adjustments both with the same date as the SA303: the first reflecting the claim to reduce to nil (in line with the SA303); and the second reversing the reduction so as to reinstate the full payment due on 31 July 2023.
So the SA303 was processed and then reversed. When I contacted HMRC to query this using the chat facility, my request for the matter to be referred to a technical specialist was denied.
I realise it is too late to correct this for the 31 July 2023 deadline, but wondered if readers have also come across this position from HMRC either in regard to their clients or themselves and if they had succeeded in persuading HMRC to reduce the payment on account due.
Query 20,181– Planning Ahead.
Has grazing rights income caused a late registration?
After a casual conversation with a colleague in the pub, I am worried that I might have misled a client about VAT registration. The client is a trust and rents out eighteen residential properties on a buy-to-let basis and also some agricultural land to a farmer. This income is exempt from VAT and the trust has never registered for VAT.
In 2018, one of the properties was refurbished and has been rented out as a holiday let through the Airbnb website. This income is VATable but less than £85,000 a year, so below the registration threshold. The problem is that the land rented to the farmer might be zero rated because it relates to grazing rights – the farmer pays for the right to keep his sheep on the land. This view was raised by my colleague in the pub and seems to be supported by Neil Warren’s article in Taxation on 19 November 2019. If this income is zero rated rather than exempt, then the combined income with the holiday letting fees exceeded £85,000 for the 12-month period ending 31 January 2019 and annually thereafter. Does the client now have a late registration problem? It seems strange that the farmer is paying for exclusive use of the land, which is usually exempt from VAT as rent. There is no option to tax election on land.
Query 20,182 – Trusting Tina.
Queries and replies
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