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Tax Questions and Answers

View some interesting and commonly asked tax questions

that crop up on our advice line

Question

My client is looking to sell a vitamin supplement in the form of a powder to be sprinkled onto a breakfast cereal, or as a capsule to be drunk with liquid, can these be treated as zero-rated food items for VAT purposes?

Answer

Dietary or nutritional supplements are not generally seen as food items as they are consumed as their name suggests by being added to or consumed in addition to food. The standard rating for VAT applies to all vitamin and mineral supplements that are supplied in powder, capsule, pill, tablet, pastille or liquid form.  Read more about other forms of supplements.

Annette Woods, Qdos Vantage Tax Consultant

27 June 2018


Question

My clients (husband and wife) have just sold a residential property that they purchased in the 1970s, it used to be their main residence but they let it out for the last four and a half years. Do they use the cost of the property from when it was bought and also is the principal private residence relief counted from that date too?

Answer

Where the property is owned jointly you will need to do two computations, one for each client in relation to their respective shares. When preparing the computations if the asset was owned before April 1982 then you are required to use the market value as at 31st March 1982. If any enhancements were made prior to April 1982 these are not included in the computation as they would be reflected in the 31st March 1982 market valuation.
For calculating the principal private residence relief (PPR) TCGA1992 S223(7) states that the ‘period of ownership’ does not include any periods before 31st March 1982. In your client’s case PPR will be available for periods of actual occupation from 1 April 1982 to when they moved out, in addition to this they will get deemed occupation for the last 18 months of ownership irrespective of whether they were living there during that time. The only condition for this is that they lived in the property at some time as their main home during their period of ownership.

Finally, as your clients have let the property and it has been their main home at some time during the period of ownership they will also be able to claim lettings relief (LR). This is the lower of:

  • the amount of PPR already calculated
  • £40,000
  • the amount of any chargeable gain made because of the letting

Both the husband and wife will be able to claim the lettings relief against their respective calculations. Further guidance can be found in HMRC’s helpsheet HS283: Private Residence Relief which can be found on the .Gov website.

Julie Rose, Qdos Vantage Tax Consultant

12 June 2018


 

Question

My client is throwing a summer party for his staff and are allowing the staff to bring a guest. They have incurred VAT on the hire of the venue, entertainment and catering. Can my client claim this VAT?

Answer

Yes, but only the proportion of the VAT incurred that can be said to relate to the staff. The VAT incurred in regard to attendees that are not staff is restricted under the Business Entertainment rules. The VAT will therefore ned to be apportioned accordingly.

However, there is an alternative which your client could use to enable him to claim all the VAT he incurs on the party.

HMRC advises that entertainment is Business Entertainment when it is provided free of charge to anyone who is not an employee. Therefore, if your client were to make a small admission charge to the non-employees then the entertainment would not be provided free of charge and thus would not be Business Entertainment.

Although your client would be required to declare VAT on the admission charges, by charging for admission he would also be able to recover all VAT incurred in throwing the party.

Tony Pocock – Qdos Vantage VAT Consultant

5 June 2018


Question

How do I check if a supplier or customer is VAT registered and giving me their correct VAT number?

Answer

VAT registration numbers can be easily validated by the online checker on the EUROPA website or type VIES into any search engine and follow the links on the VIES – EU Commission website “Check a VAT number.”

This site can be used to validate any VAT number in any EU country and UK entries are updated every night so new registrations should be available for viewing 24 hours after they have been issued.

There are only 4 boxes to complete.

    1. Member State – The first box asks for the Member State, select the dropdown menu to see all 28 Member States of the EU. Select GB for validating a number issued by HMRC
    2. VAT Number – Enter the VAT number you are wanting to validate.
    3. Requester Member State.
    4. Requester VAT number.

These last 2 boxes are optional but if you are looking for confirmation this check has been performed, by completing these boxes with your own Member State and VAT number before clicking on the ‘Verify’ button you will be given a unique reference number to add to your due diligence records.

Most UK VAT registered business when applying for a UK VAT number agree to allow their business name and address to be displayed, this is very useful indeed. Unfortunately, many European business opt out of this and for some foreign business’s you will only get a reply saying if the number is valid or not. However, it is an EU requirement that all websites must display their VAT registration numbers so if you get the valid message only I would recommend you go online to the business’s website and find a page showing their VAT number and address and retain a copy for completeness of your records.

Annette Woods – Qdos Vantage Tax Consultant

23 April 2018


 

Question

My client is a newly formed property development company and we have recently tried to register them for VAT as an “intending trader” but HMRC have refused the application, asking for proof of land ownership and a copy of Planning Permission, neither of which my client has yet. What other evidence can I provide to get HMRC to accept their “intending trader” registration?

Answer

Land ownership, along with a related planning permission, are clearly definitive evidence of your client’s business intentions.

Without these you have to provide HMRC with a sufficient weight of evidence to satisfy them of your client’s intention to trade and make taxable supplies. There is no definitive list of what will or will not satisfy HMRC but the following documents could add weight:

      • business plans that have been prepared;
      • communication with investors or with financial institutions that are being canvassed to fund the development;
      • documented meeting or other communication with the planning authorities in regard to the development;
      • documented early discussions or other communication with architects or planning consultants in regard to the development;
      • early tenders or quotes from building contractors in regard to the cost of the development.

Unfortunately the final say on whether or not to accept an intending trader VAT registration application is HMRC’s but the more evidence that you can provide them, the more likely they are to agree.

Tony Pocock, Qdos Vantage VAT Consultant

9 April 2018


Question

Has the tax relief for childcare vouchers ceased?

Answer

From 6 April 2018, childcare voucher schemes will close to new applicants. You may be able to get Tax-Free Childcare instead.

You can keep getting vouchers if you’ve joined a scheme and get your first voucher by 5 April 2018, as long as:

      • you stay with the same employer and they continue to run the scheme
      • you don’t take an unpaid career break of longer than a year

If you get Tax-Free Childcare

You can’t continue to claim childcare vouchers if you successfully apply for Tax-Free Childcare.

Which scheme you’re better off with depends on your situation. Use the childcare calculator to work out which type of support is best for you.

You must tell your employer within 90 days if you get Tax-Free Childcare. They’ll then stop giving you new vouchers.

You can continue to use any vouchers you already have, including to make a joint payment for childcare with Tax-Free Childcare. There’s no deadline for using your vouchers.

Once you’ve told your employer that you’re getting Tax-Free Childcare, you can’t rejoin their voucher scheme.

Linda Eales – Qdos Vantage Tax Consultant

March 2018

 


Question

My client was the subject of a VAT visit and during the visit the VAT officer advised that he was going to uplift my client’s records and accounts and take them away with him, which he did and provided my client with a receipt for the records. Does the officer have the legal right to do this?

Answer

Yes, the officer does have this right.

Section 16 of Schedule 36 of the Finance Act 2008 allows an Officer of HMRC to remove records that have been provided to him if he considers it necessary to do so.

There are several reasons that the officer may consider this action necessary. It could simply be that there are so many records that require his attention that the time allocated to him during his visit is simply not sufficient for him to carry out the checks he considers necessary OR, at the other end of the scale, his initial checks may have raised considerable concerns about the validity of the records or the business that he considers it necessary to take the records away with him to protect what could be evidence of fraud.

Whatever the reason for taking the records the officer must issue an official receipt which should be completed with the taxpayer’s details, should list all the records he has taken and should provide the officers full contact details, including his name, office address and contact telephone number.

Tony Pocock, Qdos Vantage VAT Consultant

27 February 2018

 


Question

What are Unexplained Wealth Orders and can HMRC use them?

Answer

An Unexplained Wealth Order came into the legislation on 1st February 2018 and is devised to confiscate the proceeds of crime by using civil powers instead of criminal powers. The power was introduced by section 1 of the Criminal Finances Act 2017. This Act has amended the Proceeds of Crime Act 2002 (POCA).

An Unexplained Wealth Order can be obtained upon application by one of the following enforcement authorities : the National Crime Agency, Her Majesty’s Revenue and Customs, the Financial Conduct Authority, the Director of the Serious Fraud Office and the Director of Public Prosecutions.

In order to apply to the court to order an Unexplained Wealth Order, the following conditions must be satisfied:

      • The respondent must hold the asset.
      • The value of that asset must be greater than £50,000.
      • There are reasonable grounds for suspecting the known source of the respondent’s lawfully obtained income would have been insufficient for the purposes of enabling the respondent to obtain the asset.
      • The respondent is a politically exposed person or there are reasonable grounds for suspecting that:
        • the respondent is, or has been involved in serious crime (in the UK or elsewhere)
        • a person connected with the respondent is, or has been, so involved.

See more on the gov.uk site here

Linda Eales – Qdos Vantage Tax Consultant

February 2018


 

Question

My client is providing landscaping services to a developer constructing a new house. Do I charge VAT?

Answer

Most importantly get and retain a copy of the planning consent granted to the developer. This will show the extent of landscaping included in the consent and determines what can be treated as zero rated sales. If goods and services provided by your client are not specifically listed in the consent then those will be standard rated.

What is basic landscaping?

Basic activities such as suppling and levelling top-soil, laying turf or grass seeding can be zero rated but not the supplies of “decorative planting.”

What is decorative planting?

If there are any trees to be replaced because of damage or disease then then can also be provided as zero rated supplies. The planting of any other shrubs, trees and flowers are not normally classed as “closely connected” with constructing a new dwelling and so will be standard rated unless they are specifically detailed on the planning consent.

Landscaping which is not directly part of the new home construction

Landscaping within the curtilage or building plot can only be zero rated when it is basic landscaping as detailed above. If the landscaping is further away such as communal areas on a new development then you would expect this would be detailed in the planning consent.

Annette Woods – Qdos Vantage Tax Consultant

18th January 2018


Question

My client is a building contractor working on the renovation of an existing 2 storey commercial building. The developer also wants my client to build a new 3rd storey which is to contain separate residential apartments. I know the work to renovate the commercial storeys is standard rated but can my client zero-rate his work in regard to the new upper residential floor?

Answer

The majority of your client’s work in regard to the new residential floor can be zero-rated.

However, your clients work on the roof, constructed on the top of the new residential floor, is considered to be relevant to the building as a whole, not just the upper floor. As such your client will need to value the cost of his services of constructing the roof and will need to apportion his charges between being standard rated (where relevant to the commercial part of the property) and zero-rated (where relevant to the residential part of the property).

This is no defined method to use in regard to apportionment but HMRC insist the result must fairly and reasonably represent reality and as long as it does this then HMRC will not usually argue the method. One method of apportionment in this particular case could be as simple as treating 2/3 of the roof as being standard rated on the basis that 2 of the 3 floors of the building are commercial.

Tony Pocock, Qdos Vantage VAT Consultant

4 January 2018


Question

My clients are husband and wife and they jointly own a rental property that qualifies as a Furnished Holiday Let (FHL). I have always split the rental income 50/50 on their Self Assessment Tax Returns despite that fact that the husband is retired and actually spends a greater part of time managing the property. Someone has told me that I can split the profits and expenses on this basis, is that true?

Answer

Yes it is, the Property Income Manual on HMRC’s website at PIM4015 explains that where a husband and wife (or civil partners) carry on a business that meets the FHL criteria then the profits or losses may be split in a way that that parties agree.

The legislation in the Income Taxes Act 2007 S386 (1) and (2) states that income arising from property held in the names of individuals who are married to, or are civil partners of, each other, and who live together will for income tax purposes be treated as it they are beneficially entitled to the income in equal shares and this is the case for ordinary rental property businesses.

However, as your client meets the FHL criteria they will be able to split the profits and losses on a different basis in line with the legislation at Income Taxes Act 2007 S836 (3) where it states the treatment under S386 (1) and (2) does not apply in relation to any income within certain exceptions and exception D states:

Exception D

Income arising from a UK property business which consists of, or so far as it includes, the commercial letting of furnished holiday accommodation (within the meaning of Chapter 6 of Part 3 of ITTOIA 2005).

This guidance goes with the warning that the profits are being split on a commercial basis and not just as a means to avoid paying tax (for example if the husband is a basic rate taxpayer and the wife pays higher rate). In your clients case the husband factually spends more time managing the property so would be able to demonstrate the basis on which it has been split e.g. 75/25 should HMRC make a challenge.

Julie Rose, Qdos Vantage Tax Consultant

14 December 2017


Question

My client has previously been using the Flat Rate Scheme (FRS) but now wishes to change to normal accounting method. He applied to leave with effect from the start of his current VAT period but HMRC have refused this date, advising his leaving date will be the start of the next VAT period. Can my client leave retrospectively?

Answer

Essentially, yes.

Case Law shows that Tribunals agree retrospective entry to, and thus by extension, exit from FRS from a date from which no VAT returns have been submitted as from that time the taxpayer has not taken advantage of the purpose of FRS, this being the reduced burden for record keeping and administration.

This is now supported by the wording of HMRC guidance at para 12.1 of VAT Notice 733 which states “HMRC will agree to a date in the previous accounting period if you have not already submitted your return under the flat rate scheme.” as well as HMRC’s online guidance in FRS4100 which states “You should normally refuse an earlier date where the business has already calculated its VAT liability for the period(s) using the FRS accounting method. This is because the FRS exists to simplify VAT accounting and record keeping, so allowing a business to spend less time on VAT.”

As your client has yet to submit the return for his current VAT period you should request that HMRC reconsider the exit date on the basis of their own guidance.

Tony Pocock, Qdos Vantage VAT Consultant

1 December 2017


Question

Is there any tax- exempt limit for S455 CTA2010 tax charge on the director or employee loans made by a close company?

Answer

s455 CTA2010 tax charge is applicable when a company gives a loan to its directors or employees and it is not repaid within nine months and one day of the accounting year end. The current rate for the tax charge is 32.5% from 6 April 2016 for all relevant loans made or benefits conferred by close companies.

S455 tax is only due on the new loan, not the total outstanding loan. The charge applies to a debt created or loan made in an accounting period (AP) rather than the total amount outstanding at the end of the AP (although the two amounts may well be the same, particularly in the first AP).

There is no minimum exempt amount for the controlling directors or participators (who owns more than 5% of the ordinary share capital) of a close company. So any loans taken out will be subject to the tax charge if not repaid within the time period.

However, where a close company makes a loan or advance for any purpose to a relevant person who is also a director or employee of the close company or of any associated company, that loan or advance is not within CTA10/S455 if all the following conditions are satisfied:

      • the amount of the loan in question plus the outstanding amounts of loans made to the borrower does not exceed £15,000 (Condition A), and
      • the borrower works full time for the close company or any of its associated companies (Condition B), and
      • the borrower does not have a material interest in the close company or any of its associated companies (Condition C)

When deciding whether the limit of an individual employee has been reached, do not take loans to the spouse into account.
Where both husband and wife are directors or employees, they will each be entitled to a separate limit of £15,000.

Sarfraz Khan – Qdos Vantage Tax Consultant

17 November 2017


 

Question

My client provides staff in the entertainment industry and is hiring out a DJ for an event to be held in the UK. The invoice is being sent to a business in Dubai, do we charge VAT?

Answer

Under the Place of Supply of Services rules when this sale is to a business (B2B) we need to look at where the customer belongs. In this case the business is located outside of the EU and so the supply is treated as outside the scope (OSS) of UK VAT and the sale is shown on the VAT return in box 6 only.

What if the customer is in business but is based in the EU?

If the customer is a B2B customer, then the same rule as above is applied i.e. where does the customer belong. This sale is also treated as OSS but as the customer is based in Europe we apply the Reverse Charge (RC). On the VAT return you show it in box 6 only and you will also need to file an EC Sales list return and use indicator 3 for Services.

What if the customer is an individual based outside of the UK?

Where B2C services are provided for entertainment activities, we look at where the event is being performed. As this event takes place in the UK we treat this sale as standard rated for VAT and show on the VAT return in boxes 1 and 4.

What if the customer is in the UK?

This is a normal standard rated activity in the UK and VAT at 20% is applied on the sale to both B2B and to B2C customers. Show on the VAT return in boxes 1 and 4.

The VAT Notice741A Place of Supply of Services gives more information on this topic.

Annette Woods – Qdos Vantage Tax Consultant

21 September 2017


Question

My client has sold a residential property, it was originally his main residence and then it was let out for a period of time. I have worked out that the private residence relief (including last 18 months) and lettings relief do not fully cover the period of ownership so there is a chargeable gain.
What rate is this charged at as I have read contradictory information, some stating that it will be charged at the rates of 18% and 28% and other that implies the lower rates of 10% and 20% respectively will be charged as it qualified in part for private residents relief?

Answer

The gain in relation to your client will be charged at the higher rates in line with legislation was introduced in the Finance Act 2016 Part 4 Section 83 to amend TCGA1992 Part 1 Section 4.

The new CGT rates of 10% and 20% were introduced for disposals on or after 6 April 2016 but do not apply to transactions involving residential property or carried interest. The information publicised by HMRC was ambiguous as it stated:

This measure reduces from 6 April 2016 the 18% rate of CGT to 10% and the 28% rate of CGT to 20% for chargeable gains, except in relation to chargeable gains accruing on the disposal of residential property (that do not qualify for private residence relief). This was interpreted by some that if any element of private residence relief was due the lower rates would apply.

When looking to the legislation the rates are reduced by the words in section 2 being substituted:

(a)  in respect of upper rate gains accruing to a person in a tax year, is 18%, and
(b)  in respect of gains accruing to a person in a tax year which are not upper rate gains, is 10%

Additionally, there was the insertion of section 2A defining the meaning of ‘upper rate gains’ as:

(a)  residential property gains (see section 4BB)
(b)  NRCGT gains (see section 14D), and
(c)  carried interest gains (see subsections (12) and (13))

When reviewing section 4BB the legislation only talks about a disposal of UK residential property interest, or a disposal of a non-UK residential property interest. It does not differentiate between property that is a private residence or not so the higher rates will apply where a gain is partially covered by private residence relief.

Julie Rose – Qdos Vantage Tax Consultant

September 2017


Question

My client’s tax question is – I am tax resident abroad and considering the sale of a property in the UK that was previously my main residence.  Will I be liable to pay capital gains tax in the UK?

Answer

Since 6th April 2015 disposals of residential property situated in the UK are within the scope of charge here.

The capital gain arising can be calculated in one of two different ways. Either the conventional method of consideration received less original base cost, or consideration received less the market value as at 6th April 2015, when the statute changed. For most individuals the market value route will be most beneficial but if that route is chosen then some reliefs are affected, in particular, the principal private residence exemption. The usual relief is determined by a fraction of the qualifying period (actual occupation + final 18 months if appropriate) over the entire period of ownership, when adopting the market value option, both the period of ownership and the qualifying period are deemed to begin on 6th April 2015. Thus, when deciding which calculation to use both methods need to be considered as the movement of the proportionate relief can also affect the result.

It is mandatory for the disposal to be reported on line to HMRC within 30 days of the conveyance if penalties are to be avoided. The penalties are imposed regardless of the ultimate consequence, ie whether the end result is a loss, a gain or a chargeable gain and begin at £100 for an initial lateness with further penalties for exceeding six month and 12 month deadlines. Interest and late payment penalties can also be added. Payment should be made within the same 30 deadline unless the individual is already within the Self-Assessment regime when payment can be made on the normal due date.

The gain may also be subject to charge in the client’s country of residence but depending on the terms of any Double Tax agreement, a foreign tax credit may be available in respect of any UK tax paid. HMRC are currently aggressive with the penalty charge and as clients have a tendency to advise transactions only after the tax year end, it would be wise to make them aware of their obligations before any infraction of the legislation occurs.

Elaine Wood – Qdos Vantage Tax Advisor

August 2017

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