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Cars and coronavirus
Can furloughed employees have a reduced car benefit?
My client company is receiving enquiries from its employees – mainly the sales force, but some managers as well – on whether they should still be liable to the car benefit-in-kind charge.
The sales force employees have been furloughed because their work would bring them into contact with others and many of their customers have, of course, furloughed their own employees.
My client’s employees are taking the lockdown seriously and say that they are not using their company cars for business or personal purposes. Is there a way of the taxable benefit-in-kind charge being reduced for the duration of the lockdown period?
If the benefit charge was reduced, presumably my client company could also benefit from a reduced class 1 National Insurance charge? The director has asked whether the company cars could be subject to a SORN (statutory off road notification) declaration. Might that help the tax situation?
I hope Taxation readers can advise.
Query 19,555 – Nuvolari.
Covid concerns
VAT input tax incurred on abortive project costs.
I act for a property developer client who purchased a plot of land last year, with a view to building 24 apartments.
Her intention was to sell the apartments, which would have all qualified as dwellings; in other words, they would have been sold with a lease exceeding 21 years.
The sales would have been zero rated for VAT, so my client claimed input tax on the legal fees for buying the land (£3,000) and also on a detailed architect and surveyor report about the sizes and layouts of the apartments (£8,000).
However, as a result of the coronavirus lockdown, my client no longer feels confident about the venture and has received a reasonable offer to sell the land instead to a housing association, which will build the apartments. No building work has started on the site. The land sale will be exempt from VAT.
My questions concern the £11,000 of input tax that has been claimed on the professional fees.
- Does this need to be repaid to HMRC under the payback and clawback rules, which seems unfair?
- Would HMRC look at the claim favourably because the change in plans directly relates to the coronavirus crisis?
I look forward to hearing from Taxation readers.
Query 19,556 – Lady Bracknell.
Share structure
Would different share classes be open to challenge?
I have been approached to act on behalf of a group of four interior designers who want to set up in business together – they all are trading separately at the moment. They want to form a company so that they can create a single brand and benefit from economies of scale when purchasing from suppliers and the like. They would prefer to have four classes of shares – A to D – to enable the payment of dividends of different amounts to each shareholder depending, in part, on the volume of business that each of them generates. The shareholders are not related.
I know that these alphabet share arrangements are very common and, as long as the shareholders are fully aware of all the implications, can offer significant tax advantages. But I am also aware of concerns expressed by many that such structures could be challenged by HMRC on the basis that they are, in fact, merely a disguised form of remuneration or are caught by the post-acquisition benefits from shares rules. Are these theoretical concerns or is there a realistic possibility that HMRC might challenge this arrangement and, if so, would it be successful?
I would be interested in hearing from Taxation readers about their experiences of HMRC challenges in similar cases.
Query 19,557 – Alphabetti.
Muddy waters?
Tax concerns on disincorporating holiday home.
I act for a married couple who have owned a holiday cottage in the Lake District through a limited company for two years.
The company previously owned two butchers’ shops that were rented out to a third party for 15 years. The shops were sold and the proceeds less outstanding loans were used to buy the cottage.
The cottage has been rented out as a furnished holiday letting for two years and it fully meets the conditions to qualify as a furnished holiday letting in that it is available for letting for more than 210 days a year, with actual lettings exceeding the 105-day threshold that also applies.
My clients own the shares jointly and have asked about the possibility of liquidating the company with a members voluntary liquidation (MVL) and then transferring the property to themselves as a final distribution that qualifies for business asset disposal relief.
They think this might be a good chance to make the transfer because of the falling property values caused by the coronavirus crisis.
They are thinking in particular of inheritance tax issues. My concern is whether the previous lettings for a non-qualifying use will muddy the waters as far as business asset disposal relief for the company is concerned and whether there will be a stamp duty land tax problem as well.
The property at cost figure in the balance sheet is about £350,000, but the owners think it would fetch only about £300,000 on the open market.
Taxation readers’ thoughts would be much appreciated.
Query 19,558 – Wordsworth.
