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Company conundrum
Company profits to directors’ personal service companies.
My client, Mr X is the director and majority shareholder of Company A. His wife is a minority shareholder. Most of this company’s work is carried out for Company B. In effect, Mr X – through his company, operates as a sales agent for Company B which buys and sells goods.
Another separate firm, Company C, also operates as a sales agent for Company B. That company is run by its joint directors and shareholders, Mr Y and Mr Z. All three companies are small and other than this work relationship there are no other connections between the directors and the companies.
I have been advised that the shareholders of Company B have sold their shares to Mr X, Mr Y and Mr Z who now each own one-third of the shares in Company B.
The three directors intend to carry on invoicing Company B and extracting profits through their respective companies and this is where the alarm bells have started to ring.
As they are all directors of Company B, can they do this and is there also an IR35 problem or should they just draw salaries from Company B? I have an uneasy feeling that there may be a problem here with the method of profit extraction, but I am not entirely sure what it is.
I should be most grateful if Taxation readers can flag up any potential problems and relevant legislation – or am I worrying unnecessarily?
Query 19,923 – Uncertain.
Small trader
When does a hobby become a taxable trade?
I have a client who is a well-paid local government official. She has always been a keen amateur photographer and has from time to time received small sums (never more than a few hundred pounds a year) for her photographs.
I’ve always taken the view that this is a non-taxable hobby and in any case would be covered by the trading allowance. No notification has been given to HMRC about this activity. She has told me that she is starting to get well-known in her locality and is likely to receive more substantial income from photography in the future, to the extent that she may well change to part-time employment to have time to develop her photograph businesses.
At what point does this turn from a hobby into a taxable trade, and, if and when it does, what is the capital allowances position on the cost of the photographic equipment which she has acquired over the years? Her total expenditure must run to several thousand pounds and much of this equipment still has a high second-hand value.
I look forward to readers’ replies.
Query 19,924 – Snapper.
Information request
HMRC’s request for overseas income or gains information.
One of my clients has received a letter saying that HMRC ‘has received information suggesting they may have received overseas income or gains that they may have to pay UK tax on’. The letter asks the client to complete a certificate and return it within a month.
The certificate gives four options: ‘I need to make a disclosure’, ‘I believe I have declared everything’, ‘I have not declared overseas income and gains because they are covered by allowances’, and ‘I have not declared because the income and gains are exempt’.
I am wondering how to respond to this ‘request’. In my view, this is not ‘information reasonably required to check the tax position’. I am not sure that HMRC has the right to require a taxpayer to sign such a certificate, and I am not sure that it is in any way helpful to my client to do so. I am thinking of calling the telephone number on the letter to try to find out what they think might have been omitted.
I would appreciate readers’ views on HMRC’s rights and powers in this situation, and my own or the client’s rights to be told more specifically what the issue might be.
Query 19,925 – Rufus.
Holiday lets
VAT treatment of holiday lets in Greece.
I act for a limited company that owns the freehold of two houses in Corfu. They are rented out as holiday lets but my client always invoices a UK agent, which then applies a mark-up and charges the final UK holiday makers who will stay in the houses.
My client started this activity in April 2021 – post-Brexit – and has charged the agent UK VAT at 20% through his existing VAT registration as a UK-to-UK sale. Is this correct?
To create an extra complication, my client recently paid 50,000 Euros plus 24% Greek VAT to a builder based in Greece for putting in outdoor swimming pools to each house. I told my client to ask for a VAT credit from the builder as this is a B2B sale to a non-EU business – my client can then do the reverse charge on his next VAT return. But the builder has refused to cooperate.
Can readers help as it seems very confusing?
Query 19,926 – Confused.
