.png)
.png)
Will corporation tax be due on loan?
A company is undertaking a purchase of own shares using the ‘single contract multiple completion’ method.
The shares are being bought back in two tranches, with half the shareholding being bought back on ‘day one’ and the remaining half expected to be bought back within two years, subject to available cash and reserves at that time.
In accordance with what we understand the process to be for that form of buy-back, the tranche of shares to be bought back in the future have had their rights removed. The exiting shareholder also resigned as a director at that time.
What has puzzled us, though, is that once the ‘day one’ purchase of the initial tranche had completed, with the consideration for that tranche paid and the rights removed from the remaining shares, an interest-free loan was made to the exiting shareholder of approximately half the amount of the consideration expected to be paid payable for the second tranche of shares, which will then be offset against the consideration that will, in due course, be paid for the second tranche of shares.
The company is a ‘close company’ and so we queried whether corporation tax would be due on the loan under CTA 2010, s 455 but were told that the exiting shareholder was no longer a ‘participator’ for s 455 purposes, due to the removal of the rights on the second tranche of shares.
We are aware that within the last few years, HMRC’s view of the status of the remaining tranches of shares being bought back using this method, has changed. We would, however, be interested in readers’ views on whether the exiting shareholder would still be regarded as a ‘participator’ for s 455 purposes, whether before or after HMRC’s change of view. Also, would any form of tax charge engage on the interest that isn’t being charged?
Query 20,327 – Puzzled.
Is there a duty on a practitioner to advise to make a disclosure?
My client is a 90-year-old widow. While reviewing her assets, I have noticed that six years ago she and her husband sold a jointly held property. This was not declared on either of their tax returns – my client told me that she always left tax matters to her husband and she managed the family finances. He prepared her return, although she signed it. Her husband died five years ago. A capital gain of about £20,000 arose.
What are my obligations? I believe that HMRC could not raise an assessment in respect of the husband’s share of the gain as the four-year time limit applies because he has died. As far as the widow is concerned I think that there is a good case that, as she relied on her husband, she might be able to argue that she was not careless and had no reason to doubt that he was doing things properly.
I think that I have an obligation to recommend that my client notifies the failure to return the gain but is there a way of making a disclosure which minimises the possibility of HMRC raising assessments?
I have not come across such a situation before and, as you can imagine, my client is very distressed about the whole matter. Query 20,328– Caring Adviser.
Apportioning costs of football event for staff.
My client is a reasonably large building company operating across a wide geographic area. It is proposing to sponsor a football match at a local division 2 football club. It will put up advertising hoardings and a marquee adjacent to the ground.
Staff and their families will be invited to attend the match and to be entertained before, and after, the match at the marquee. The company will also invite a small number of clients to the event.
The client is doing this partly to advertise its services and partly to thank its staff for their hard work. It believes that the costs of inviting a few clients will be de minimis and as such it has suggested that the full costs will be deductible for corporation tax purposes.
I have suggested that the costs should be apportioned on a head-by-head basis between clients and staff, but my client thinks I am being too cautious. How would other readers deal with this issue? Query 20,329– Centre Forward.
Does new cricket pavilion create a VAT problem?
I act as treasurer for my local cricket club, which is constructing a new clubhouse on some land given to the club on a 999-year lease by a local farmer, which is adjacent to our pitch.
We will be using a variety of local builders and merchants for the building project, some of the builders are not VAT-registered because they are sole traders trading below the £85,000 sales threshold and we are also buying materials from eBay which are VAT free in some cases. The building will not qualify as a charitable building.
The project cost is £150,000 and a colleague says that we need to register for VAT because we have made a supply to ourselves that exceeds £100,000. This would not be very helpful because we have other sources of income that would be captured by VAT, ie bar sales. Is my colleague batting up the wrong tree? Will VAT be an extra project cost? The issue has stumped me completely, so I would appreciate readers’ views on the state of play and if we are on a tricky VAT wicket here? Query 20,330– Anderson.
Queries and replies
Full T&Cs: tinyurl.com/RFguidelines.
