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Divvied up
Can liability on an erroneously paid dividend be mitigated?
During 2016-17 and 2017-18, I wrote to my client to explain that he and his wife could each draw dividends of up to £5,000 from their limited company – they have no other sources of dividend. I also mentioned that this limit would be reduced to £2,000 for 2018-19. I also like my clients to keep strict records of dividends paid and to make these during the tax year. The company accounting year end is 31 March and there are plenty of reserves to cover these payments
My clients do not need the income, but it seemed sensible to draw funds from the company while there was the opportunity to do this tax-free.
The husband has just contacted me to say that in the last week of March he and his wife each drew another dividend of £5,000 and have made a board meeting note and supporting dividend vouchers.
He has overlooked the lower tax-free limit and this will create an unnecessary liability for the husband, although his wife may have unused personal allowances. Can the husband waive part of his dividend or are there any other ways I could redeem this situation?
Query 19,347– Dave.
New incorporation
Corporation tax exemption on membership activities.
The members of a company limited by guarantee are employed by a branch of the emergency services. The company runs training and conferences which only its members are eligible to attend. Attendance fees are invoiced to the members’ employers rather than to the members themselves.
Before the company was formed, the same activities were carried out by an unincorporated body which did not prepare tax returns or pay corporation tax. When the new company was formed, it took over the activities of the old body and received a significant transfer of funds, of which half was a grant received from a third party to assist with the incorporation, and the other half was retained surpluses.
The articles of association state that the objects of the company are to promote, aid and further the purposes of its members’ profession and provide support. Its income and property must be used in this way and may not be paid to the members. On a winding-up or dissolution any remaining funds are to be given to a body with similar objectives.
I believe that the company may not be entitled to the corporation tax exemption on the grounds of mutual trading, because it invoices the employers not the company’s members.
I have several question for readers.
First, are there any grounds for applying the exemption and, if not, will the money transferred from the old unincorporated body now be taxable along with any surplus made in the company’s first year of trading?
Second, would there be any benefit in invoicing the members directly, who could then be reimbursed by their employers, or would the costs fall foul of the requirement that training costs incurred by employees must be incurred ‘wholly, exclusively and necessarily’ in the course of employment?
Third, if the company obtained charitable status, which it has applied for, would the existing activities be considered primary purpose trading and therefore exempt from corporation tax?
Finally, if the training and conferences are deemed to be secondary trading, should a trading subsidiary be formed to carry out these activities, with surpluses gift aided annually to the parent charity?
I look forward to replies.
Query 19,348– The Bill.
Beyond control
Tax position on property sale and insurance proceeds.
My client owned a terraced residential property. In 2013, the house next door was completely demolished in a gas explosion. The adjoining properties, which included the one owned by the client, incurred structural damage.
My client made a claim against the insurance company which challenged this.
A subsequent referral to the ombudsman upheld my client’s claim. The insurer then appealed the decision, but without success. After much delay, the insurers eventually paid out to the maximum amount, namely £92,000.
In the meantime, quotes had been received which made the renovation uneconomical. Consequently, the client decided to sell the property at auction, receiving £35,000 in 2018.
How should the insurance money and the proceeds of sale of the property be treated for tax purposes?
Query 19,349– Seller.
Bright spark
VAT position with online sale of lighting goods.
My client sells lampshades and other light related goods through Amazon. Basically, he delivers his goods to an Amazon warehouse in the UK but if the goods are ‘top sellers’ Amazon will transfer some of the items to hold as stock in its warehouses in Germany, Spain, Italy or France. Thus, they are available at short notice to meet orders from customers in those countries.
My concern relates to VAT. When goods are sold, Amazon sends a delivery note to my client, also confirming the amount of the sale, so that we can account for output tax on his UK VAT return. However, correspondence received from the German tax authorities suggest that the client should be VAT registered there.
Can Taxation readers shed some light on this dilemma? And how will Brexit affect this arrangement? My client is adamant that he does not know where Amazon sends his stock until he sees the delivery note.
Query 19,350– Brightwell.
