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PAYE
Recouping tax deductions on overdeclared salary.
My client, a UK-based individual, has been employed by CallCo Limited for the last three years at an annual salary of circa £5,000 per month, payable on the last working day of the month. He is not otherwise connected to the company.
The employer encountered financial difficulties to the Covid-19 pandemic and the company was wound up in the summer of 2020.
I have now been approached by my client that although his employment was terminated upon the company’s complete cessation of activities in May 2020, he has not been paid his salaries for the period March to May 2020.
Having gone back and reconciled the paperwork, the P60 issued by the employer reflects the gross-equivalent of 12 monthly salaries. However, only 11 monthly salaries were actually paid. It is not clear whether PAYE was paid to HMRC for March 2020, but I presume it was not.
To add confusion, payslips issued for March, April and May 2020 show the usual salary and deductions for PAYE and National Insurance, although the ‘amount paid’ was never paid.
Taxation readers’ suggestions are appreciated as to how to go about the overdeclared salary bearing in mind that the company no longer exists and Jason considers he will not be able to find out any information from his former boss.
Query 19,799 – Salmanazar.
Connected person
Scope for allowable losses by connected persons.
My client owns a piece of land which has gone down in value considerably since he purchased it.
There is no doubt that this is a genuine reduction in value due to local circumstances. In broad term the cost was £1m and the current value is about £600,000.
The land has been independently valued at that amount by two local valuers.
His son has offered to buy it from my client at the full market value, paying on completion. My assumption was that as this was a market value transaction the £400,000 loss which my client would realise would be allowable against future gains.
However, it has been suggested that as this was a connected person transaction the loss would only be available against future disposals between my client and his son.
That seems unfair to me – why should my client be disadvantaged in these circumstances. Can readers confirm whether the connected persons rule really operates in this way?
Query 19,800 – Bemused.
Holiday lets
Effect of Covid on furnished holiday letting status.
There has been a lot of discussion on various internet forums about the impact of coronavirus on furnished holiday letting status, but I am struggling to find definitive advice to give to my clients.
There are two separate tests: the 105-day letting condition and the 210-day availability condition. In most cases the 105-day test can be managed by a combination of the averaging and period of grace rules, but what about the 210-day test?
Were the properties still available for rent even though for most of last year it was illegal to rent out accommodation? In which case, could HMRC really argue that the properties were available to somebody who wanted to break the law?
I would like to hear from advisers on what they might be doing for their furnished holiday letting clients? Has any reader obtained a definitive ruling from HMRC on the issue?
Query 19,801 – Staycationer.
Output tax
Can client transfer output tax to another business?
Our firm completes the VAT returns for a UK based subsidiary of an overseas company. It sells buckets and accessories to wholesalers.
There is also a separate UK subsidiary, which sells buckets and accessories to the hotel sector, and is also VAT registered.
We recently submitted a VAT return to HMRC for the first company, approved by the client, but a senior overseas director has now told us that the return included ten sales invoices issued by the wrong company.
These invoices showed the name and address of the first company, its VAT number and its bank details for payment. The customers paid the invoices and did not raise any queries, which is strange.
The client has asked us to transfer the VAT charged on these invoices to the return of the second company, by treating them as errors on both returns. Is this approach correct? The amount of VAT exceeds £50,000.
Alternatively, should they instead issue backdated credit notes and re-invoice the customers on the correct company?
Readers’ thoughts would be appreciated.
Query 19,802 – Hyacinth.
