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Book launch
What parts of an event are deductible expenses?
My client is a physiotherapist. She has written a book on certain techniques and treatments, and is going to hold a book launch.
This will obviously involve entertainment, which will not be allowed as a deductible expense, but is any of the cost allowable as straightforward publicity?
If she paid a single amount to an organiser for ‘the event’, I imagine it would all be disallowed – but if she pays separately for such items as room hire and advertising the event (which will also advertise the book), what (if anything) is deductible?
She is exempt from VAT so it is only the profit calculation that concerns me.
Query 20,035 – Cedar.
Exit dilemma
Does permanent establishment exemption apply?
I have been having a debate with colleagues about whether the overseas permanent establishment (PE) exemption (CTA 2009, s 18A etc) covers exit charges on the overseas PE assets that arise when the UK company migrates (TCGA 1992, s 185).
It is clear that the overseas PE exemption election is automatically revoked when the UK company migrates (CTA 2009, s 18F(7)), but we don’t think that necessarily answers the question.
My initial instinct was that surely the overseas PE exemption must cover the migration exit charges on the overseas PE assets. My colleagues were not so sure.
Would an exit charge under s 185 be covered by the definition of ‘relevant profits amount’ in CTA 2009, s 18A(6) (and removed from charge under s 18B)? As an exit charge is a deemed disposal which arises in the UK company, would it be attributable to the overseas PE?
There is possibly a reference in HMRC’s International Manual at INTM282010, where it says that gains are to be ‘left out of account’ to the extent that the state in which the PE is situated may exercise taxing rights in accordance with the relevant treaty. As no gain arises in the local PE state, my assumption would be that there is no gain on which the local state can exercise any taxing rights. Therefore, such gains would presumably not be ‘left out of account’, ie not be included within the scope of the overseas PE exemption.
Can readers restore harmony between me and my colleagues by coming up with a definitive answer?
Query 20,036 – International traveller.
Unprofitable investment
Is there a loss to report?
Over ten years ago, my client invested, as a limited liability partner, in two private equity funds. Each year, he received details of amounts to be included in his personal tax returns.
In 2021-22, his interest in the funds was bought out and, ever since, he has been trying to understand his tax position. Other than some small interest receipts he has principally reported capital gains and losses, substantially more of the former. Unfortunately, his cash receipts from the funds do not reflect these gains. After his interest was sold, he finds he has got his original investment back, no more.
On the face of it, he has reported and paid tax on substantial net gains which, due to unrealised losses in the funds existing when his interest was bought out, he has never received.
Neither the fund manager nor their accountants have been able to help me. Consequently, any advice as to what and how he should report this position on his self-assessment tax return would be much appreciated.
Query 20,037 – Bamboozled.
Financial services business
Partial exemption credit note challenge.
One of my clients is partially exempt as a financial services business. In October 2021, the business paid £150,000 plus VAT to an outside contractor to improve and develop its website. It treated the expense as residual input tax and claimed 60% of the VAT with the standard method on its December 2021 return, which was reduced to 50% with the annual adjustment calculation carried out to 31 March 2022, ie £15,000 was claimed.
After a lengthy dispute about the quality of work carried out, the contractor has now issued a credit note for £100,000 plus VAT, which will be included on my client’s next VAT return. However, my client’s business model has changed so that 80% of his work is now VATable and only 20% is exempt. This percentage will apply on both a quarterly and annual basis.
The problem is that my client will therefore reduce his overall input tax claim on the credit note by £16,000, ie £100,000 x 20% x 80%.
This seems strange because he only claimed £15,000 in the first place. Is there a ‘fair and reasonable’ solution here, so that my client only reduces the claim by £10,000, based on the 50% input tax originally claimed?
Readers’ thoughts would be appreciated.
Query 20,038 – Number Cruncher.
