.png)
.png)
Let’s dance
Date of VAT registration following TOGC.
One of my limited company clients has purchased a business that gives dancing lessons. The seller was a sole trader and therefore not VAT registered because the income from the lessons (£100,000 a year) qualified as exempt under the private tuition rules.
My client has other annual income of £50,000 selling merchandise linked to dancing so is not VAT registered either because this income is below the VAT threshold.
My concern is whether the company should now register for VAT because it needs to take into account the seller’s turnover as far as the registration threshold is concerned. Alternatively, is the seller’s turnover exempt?
Alternatively, should the seller’s turnover be treated as taxable because lessons given through a limited company are always VATable?
The company bought the business on 31 May 2019, so my thinking is that it should register for VAT on 1 July 2019; in other words, one month after the annual taxable sales (including those of the seller) exceeded £85,000.
What do Taxation readers think?
Query 19,415 – Strictly Man.
Exclusivity
Tax treatment arising from sale of company software.
My client has received an offer for the software being developed through his limited company. At present, the company accounts show accumulated losses of £260,000 and a debt owed to the directors of £260,000. The costs relate to the development of the software and we believe these would be allowable for corporation tax purposes.
The majority of the costs were incurred before April 2017.
The heads of terms of the sale agreement refer to the purchaser buying a licence for our client’s software. However, this licence is exclusive and no term is defined. The agreement states that the purchaser intends to incorporate the software into their own products and is looking to own our client’s software.
I am concerned that if HMRC were to review this agreement, the fee paid for the licence might be considered a sale of the intellectual property asset because the agreement, in effect, prevents our client from doing anything with this software.
If this is a capital disposal, we have no costs to offset against the proceeds because the development costs have not been capitalised. Our client would then not be able to make use of the revenue loss that has accumulated, costing the company an extra £50,000 in corporation tax.
Am I right to be worried here, and is there any way of ensuring that the losses brought forward will be offset against the consideration received?
Query 19,416 – Nuggety.
Inheritance implications
Minimising capital tax liability on a property portfolio
I act on behalf of an individual who owns about a dozen buy-to-let properties which he bought over a period of some years during in the 1990s. The houses are all let to students and their values have increased significantly. My estimate is that these now have total accumulated capital gains of more than £2m.
My client is approaching retirement age and is keen to transfer the properties to his adult children so that he can save inheritance tax. Although this may make sense from that point of view, I have had to point out the problems with respect to the potential capital gains tax and stamp duty liabilities.
On hearing this, the client was not impressed and asked: ‘How did the Duke of Westminster manage to leave his properties tax free to his successor?’
I must admit that this question has occurred to me in the past and I wonder whether there are any lessons here for clients of more modest means.
Readers’ views would be appreciated on how to advise further in this matter.
Query 19,417– Duke.
Pension problem
Should state pension be drawn by a higher rate taxpayer?
My client is rapidly approaching the age at which she will be entitled to draw her National Insurance retirement pension. However, she is still employed and is paying tax at 40%. She has asked for my thoughts on whether she should claim the state pension or leave it to accrue until she ceases full-time employment.
I suppose that this request might fall under the remit of financial advice, but I would like to be able to provide some information or guidance and wonder whether readers have any thoughts.
I believe that deferment of the state pension is no longer quite as generous as it once was, but are there any general principles that one can provide in such circumstances. I can think of several other clients who will soon be in a similar situation and since the end of compulsory retirement I suspect that this is becoming more common as people continue to work beyond 65.
If my client takes the pension, the tax liability will mean she will receive only 60% of it until she ceases work when I anticipate that her other pensions and income will bring her within the basic rate tax band. One thought that did occur to me was that she could take the state pension and then pay this into a personal retirement plan. She would save the 40% tax, then be able to receive some tax free and some taxed at 20% when she does retire. Can she do this or does this fall foul of any pension recycling rules? Also, does it reduce her annual pension allowance to £4,000?
I hope Taxation readers can provide some guidance here.
Query 19,418– Pensioner.
