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Business property; Foreign trader; Grossing-up rate; Overseas complication
Business property
Business property relief on shares in holding company.
My clients are in business with the following group structure: Karl and Mark own the shares of HoldCo, HoldCo then owns the A shares (75%) of TradeCo and Karl and Mark’s children own the B shares of TradeCo.
HoldCo owns a property, now of substantial value, at which the trade is undertaken and TradeCo undertakes the trading activities. The B shares have no rights other than an entitlement to receive dividends. In practice, for many years, TradeCo has paid dividends annually on the B shares only, with no dividends voted on the A shares.
This might support a view that the holders of the A shares are not, as a matter of fact, enjoying the economic rights of the underlying trade.
Could Taxation readers comment on the relevance of the latter point when considering the availability of inheritance tax business property relief on the shares in HoldCo under IHTA 1984, s 105?
Query 19,523 – BP.
Foreign trader
VAT incorrectly charged by overseas consultant?
My business uses the services of an IT consultant based in Canada but his business has a UK VAT registration number – so he charges us 20% UK VAT on his services (supported by an invoice), and we claim input tax on these costs. He says that the UK registration is necessary because he buys and sells some computers in the UK.
However, our external accountants have told us that he should not have charged us UK VAT because he is an overseas trader and we should deal with the VAT instead by doing the reverse charge on our own returns.
The accountants have advised us to make a VAT652 disclosure to HMRC for the past four years to repay input tax of £60,000 we have overclaimed and to seek a VAT credit from the consultant.
Is this advice correct? The accountant mentioned a VAT tribunal case called Muster Inns Ltd (TC3689)
Taxation readers’ thoughts would be much appreciated.
Query 19,524 – Calgary Clive.
Grossing-up rate
What rate of tax applies to a ‘free of tax’ legacy?
A client has requested some inheritance tax advice regarding their proposed will. One proposal is that the client, as testator, will leave residential property to named beneficiaries ‘free of inheritance tax’. The residue of their estate will be left to registered charities.
My question is whether ‘grossing up’ of the specific legacies is required by reference to IHTA 1984, s 38? If so, is 40% the appropriate grossing-up rate that has to be used here, even though if no grossing up were required the correct rate of inheritance tax charged on the estate would be 36%?
I hope Taxation readers can advise.
Query 19,525 – Masky.
Overseas complication
Application of IR35 to foreign contractors.
I am helping one of my large corporate clients deal with the forthcoming introduction of the off-payroll rules for the private sector.
My client is looking at each of their contractors on a case-by-case basis and I am satisfied (as far as one can ever be in such a subjective area as this) that the procedures which have been put in place will correctly identify cases where there would be an employment relationship in the absence of the intermediary in the arrangements.
There are a couple of cases where the worker is a foreign national (one from Spain and one from Poland) who is working for part of the year in the UK for my client company by way of a personal service company which is established in their home countries (Spain and Poland respectively).
My client believes neither individual is tax resident in the UK but believes that this is not relevant because the work that these individuals are doing for it is carried out wholly in the UK. It does not know anything about the residence status of the intermediary companies other than they have names which suggest that they were incorporated in the respective home countries.
The individuals involved have said to my client that IR35 does not apply to foreign companies and that it can continue to pay the intermediary companies gross.
I think this is based on the fact that the individuals believe that HMRC does not have the power to assess a foreign company to PAYE.
As far as I can see, my client does not have to be concerned with the residence status of the individuals or the companies. It is a question of whether the work in the UK creates an employment relationship on which my client is obliged to operate PAYE and deduct income tax and National Insurance contributions under the off-payroll working rules. It will be up to the individuals and the intermediate companies to deal with any foreign taxes which might arise but that is nothing which my client needs to be concerned about.
Do Taxation readers agree with my view here?
Query 19,526 – Cautious Adviser.
