.png)
.png)
Penalty problem
Is there any hope to reduce penalties for late tax return?
My client was self-employed until she went to work as a missionary in eastern Europe in May 2017. Before she left the UK she went to an HMRC office and received help completing her 2017 self-assessment tax return and thought this completed her UK tax obligations.
She and her husband let their house and letters were forwarded to a relative because there was no reliable postal system in the remote area to which she went. She had advised the HMRC officer that she was leaving the UK.
Unfortunately, the client and her husband did not understand that they had to declare their UK rental income even though this was well below their personal allowances. She thought, as many do, that self assessment was only for the self-employed.
I was appointed to act in December 2019 when the client was being chased for outstanding returns and I completed and submitted the 2018 and 2019 forms.
HMRC is insisting that penalties of £1,300 are due for the late submission of the 2018 return even though there was no income tax liability on her share of the rent and the small amount of self-employed earnings from April to May 2017.
HMRC has reviewed the imposition of the penalties and advised that she had been in the self-assessment system for many years and it was her responsibility to access her mail. The officer concluded that my client did not have a reasonable excuse so the penalties were charged correctly.
The penalties have been recovered by HMRC from a subsequent tax repayment arising from a pension drawdown, so hardship is not an issue, but I am wondering whether there is any further action that might be taken to reduce or recover the penalty charge.
Query 19,639 – Adviser.
Tax traction
Business tax deduction claim for classic tractors.
I act for two separate clients who both have an interest in classic or vintage tractors. This is a personal interest going back to their childhoods and they will take these vehicles to vintage vehicle meetings, fetes and the like.
Both of these clients trade in the building and ground working sector. If they were to use these tractors for their businesses, for example towing mobile water tanks and moving wheeled equipment, would they be able to claim input VAT and capital allowances?
One of the clients trades through a limited company while the other operates as a sole trader. Are there any specific issues that I should be aware of in either scenario?
I look forward to readers’ comments.
Query 19,640 – Ferguson.
Manual confusion
Gift of funds from offshore bank by remittance basis.
I have recently come across the following example in HMRC’s Residence, Domicile and Remittance Basis Manual RDRM33140:
‘Tyler, a remittance basis user, donates an amount of money to a Battersea Dogs Home, a UK charity, by making a payment direct to the charity from his US bank account which contains his relevant foreign income.
‘There has been a direct remittance of Tyler’s income into the UK; it does not matter that he or any other relevant person does not benefit personally from the money.’
I find the above example confusing in the context of a gift of funds from an offshore bank account by a remittance basis user to a cousin in the UK (who is not a relevant person for the purpose of the legislation in ITA 2007, s 809M).
The view expressed by way of the above example is not quite in line with my reading of the legislation that so long as a gift made by a remittance basis taxpayer to a UK relative is not enjoyed by a relevant person, then the transaction would not be considered a remittance.
It seems, though, that HMRC would treat as a remittance a transfer made directly from the donor’s French bank account to the recipient’s UK bank account in those circumstances.
Could readers shed some light?
Query 19,641 – Remo.
House rental
What VAT is charged on buy-to-let sublet arrangements?
I have a new client who is already VAT registered due to other business interests. He is starting a new venture, based on the following model.
- He will rent three or four-bedroom houses from the owners on 12-month leases, which will automatically roll forward if both parties want to continue with the arrangement.
- He will then find three or four separate long-term tenants for each bedroom, charging each a rent that will obviously produce a profit. The advantage for the property owner is that he is only dealing with one tenant (my client) rather than three or four.
First, the charges made to each separate tenant are presumably exempt from VAT as rental income?
The client will have gas and electricity bills issued in his name and recharge each tenant one third or one quarter of the bill. Presumably my client should claim input tax and then charge output tax to each tenant? But a separate charge will be made to each tenant to cover the costs of a fortnightly clean. My client thinks these payments will not be subject to VAT because he is recharging the fee charged by the self-employed cleaners at cost; in other words, it is a disbursement situation and the cleaners are not VAT registered. I am not sure – what do readers think about both these arrangements?
Query 19,642 – Rental Man.
