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Can accumulated income be drawn by director’s spouse?
My client carries on her part-time business by way of a personal service company. She works for several different firms and there is no control or supervision and no mutuality of obligation so I am as confident as I can be that there are no IR35 issues.
Because she had other employment and was liable to income tax at the higher rate, the bulk of the part-time earnings were not drawn as salary or dividends and have simply accrued in the company’s bank account.
Her plan was to withdraw these moneys as dividends as and when she needed additional funds during her retirement. However, having now retired from her full-time employment she finds that her personal and state pension income is higher than originally expected such that she is using almost all of her basic-rate income tax band. Her husband has a lower income with substantially more of his basic-rate tax band available each year. I was wondering whether she could simply gift the shares in her company to him absolutely so that he could then take dividends or perhaps even liquidate the company.
A slight complication is that my client is still carrying on her part-time work during her retirement and shows no signs of stopping this. One thought was to form a partnership with her husband to carry out future work, but the firms that she works for might not be so keen on this. Nor do I think that a substantial spouse’s wage could be justified. Could the client start a new limited company for future work, perhaps with some (or most) of the shares being owned by her husband or are there any other ways of mitigating future liabilities?
Are these ideas practical or would they infringe any anti-avoidance provisions?
Query 20,103 – Contractor.
Can donations be offset against future income?
In a response to a recent question in this forum (Property investment company, Taxation, 22 September 2022, tinyurl.com/property-losses) readers helpfully commented that, in some cases, wasted qualifying donations by a company (ie made in a year where no profit arises) may be carried forward as ‘excess management expenses’ and therefore available to be deducted from future non-trading profits of the company.
This appears to refer to the provisions in CTA 2009, s 1223 on which I was unable to find further commentary.
Could readers clarify if there are any specific provisions/criteria for qualifying donations arising in loss-making years, to effectively be available for offset against future non-trading income (albeit under a different title), rather than being otherwise wasted altogether?
Query 20,104 – Melchi.
Can option to tax be revoked?
Our client, a newly established company, came across an offer to purchase a commercial property with a tenant in situ, for £0.5m. The deal is attractive but, for it to work, the sale had to be completed immediately, leaving no time for due diligence, etc. There was uncertainty as to whether the seller, an unconnected limited company, opted the property to tax (or if they were registered for VAT).
Given the tight timeframe, it was not possible to verify the seller’s/property’s VAT status prior to the purchase. One of the conditions imposed by the seller was that our client applies for VAT registration, exercises an option to tax the property and applies for the transaction to be treated as a transfer of going concern (being a standalone property rental business). The sale was completed on 1 March 2023 and we’ve just been notified by the seller’s solicitors that the property was never opted to tax by the seller. Our client would thus prefer to revoke the option they made, in the circumstances.
VAT Notice 742a, para 8.1.2(c) requires the transaction not to include a TOGC in order for the buyer to be able to revoke the option within six months and so it seems that the option would remain in place for the next 20 years.
Can readers identify any aspects of the transaction which would give rise to the possibility of revoking the option within the next six months? The company’s only source of income will be rental income from the unit (about £50,000/pa).
Query 20,105 – Jeroboam.
How to claim for late input tax.
I am the FD of a large manufacturing company and we have a VAT problem on which we have received conflicting advice. It relates to purchase invoices dated October 2022 which were excluded from our quarterly VAT return up to the end of December. The VAT involved is £60,000.
As I understand it, the invoices’ omission is a VAT error because the suppliers issued the invoices on time and they were received as a PDF by our production manager in October. In other words, we must submit form VAT652 to HMRC to reclaim the VAT in question (ie as an error on our October return that exceeds £10,000). The production manager was on sick leave in October, so he did not authorise them for payment and pass them to the finance department until December 2022, by which time the October return had been submitted. The alternative outcome is that we will include them as additional input tax in box 4 of our January 2023 return on the basis that they could not be included on the October return because the conditions for making a claim had not been ticked. Which option is correct?
Query 20,106 – Factory Fred.
Queries and replies
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