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Was capital gains tax adjustment overlooked?
When looking for something else I stumbled on TCGA 1992, s 125, which I must confess I had not been aware of before.
This seems to suggest that I should be reducing the base cost of clients’ shares every time there is a non-arm’s length transaction by a close company.
My clients, and I am sure that they are not unique in this regard, do transfer assets to shareholders or employees for no consideration or at undervalue from time to time. I have always computed a capital gain on the disposal by the company and taxed the individual on the receipt, but should I also have been reducing the base costs of the shares in the company? In many cases the base cost is only nominal in the first place.
In all my years of practice I’ve never seen this section being applied. Have I been missing something or am I worrying unnecessarily?
Query 20,235 – Worrier.
Can builder recover VAT retroactively?
Builder Bob purchased an area of land and started building a residential building. Builder Bob started construction before getting full permission.
At a VAT control visit, he was told, correctly, that he could not reclaim VAT on materials and costs as planning permission had not been obtained.
Bob now has his planning permission and therefore wants to recover the VAT.
Is this possible? A quick search of the internet would seem to suggest that he cannot, as permission was not granted at the time that he carried out the work.
However reading VATA 1994, Sch 8 Group 5, condition d of the note 2 says ‘statutory planning consent has been granted in respect of that dwelling and its construction or conversion has been carried out in accordance with that consent’.
Therefore, if by the time that Bob sells the property, he has planning permission, can he then recover the costs incurred on the building of the property?
Query 20,236 – Confused Fred.
Why wouldn’t HMRC code out underpayment?
As readers will know, working in tax makes you a magnet for family and friends who have tax problems – even simple ones. And I’m always happy to try to help.
Recently, a friend asked me why HMRC was telling them they had underpaid tax of about £200 for 2021-22 and which HMRC said it had contacted them about by means of a PA302 – this has not been received. The friend is a PAYE taxpayer and liable to tax at the basic rate only. They have no self-employed or other income.
Having gone through the friend’s P60s and payslips, it seems HMRC was correct – ultimately it must have arisen as a result of a PAYE error on the employer’s part. But HMRC’s letter states: ‘Please pay now or contact us if you can’t pay.’ I could not understand why HMRC had not said it would code out the underpayment in the friend’s PAYE tax code.
I managed to contact HMRC to find out more and, in effect, was told the underpayment could not be coded out in the 2024-25 tax code because the person might lose their job and then the tax would not be repaid. Long story short, my friend decided to set up a time-to-pay arrangement to get shot of the underpayment. However, it is worth mentioning that the friend had, only a few weeks before being told about the underpaid tax for 2021-22, received a refund for 2022-23. It seems that each tax year is now reviewed in isolation.
How much more sensible if HMRC had checked previous years before issuing the repayment. This does not seem to me like excellent customer service.
My query is have other readers encountered this and what do they believe the solution to be?
Query 20,237 – Not Like the Old Days.
Input tax on converting care home to dwellings.
I have a client planning a property development project and would like to confirm the VAT position.
He is buying an old care home to re-develop into nine or ten apartments. Each apartment will meet the conditions of a dwelling specified in HMRC Notice 708. They will be sold on 999-year leases. The care home has been empty and unused since 2018. My client will form a new limited company to buy the property. My questions are as follows:
- Can my client’s new company register for VAT straight away so it can recover input tax on the purchase of the building (if any) and professional fees, such as solicitors and architects, ie an intending trader registration.
- Will the work carried out by builders be subject to 5% VAT rather than 20%?
- Presumably the sales of the apartments will be zero rated because there have been no dwellings on the site in the last ten years, ie new dwellings are being created?
Are there any other risks or VAT pitfalls I should tell my client about?
Query 20,238 – Renovating Rita.
Queries and replies
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