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New queries: 12 March 2020

10 March 2020
Issue: 4735 / Categories: Forum & Feedback
Holiday hotel; Irish problem; Check confusion; Equality payment

Holiday hotel

Will a hotel room qualify as furnished holiday lettings?

My client, a non-UK company, is considering an investment in Nights Inn, an established UK chain of hotels, which operates a large portfolio across the country. It is offering the public an investment opportunity of acquiring a room in a Manchester hotel it operates.

The investor pays a capital sum for a 999-year lease of a room, entitling them to the lion’s share of any revenue generated by stays in that particular room. The appeal is that my client will receive monthly income, net of expenses and the hotel’s commission.

I am confident that the room contains ‘sufficient furniture provided for normal occupation’ and that visitors are ‘entitled to use the furniture’, to quote HMRC’s guidance in HS253.

I understand that there are unlikely to be ‘long stays’ of more than 31 days, the room is marketed for at least 210 days a year and it is highly likely that the room will be let for at least 105 days a year.

Looking at the furnished holiday letting (FHL) provisions in CTA 2009, s 264, I cannot see why the fact that the property is, in effect, managed and operated by an agent would deny the FHL status of the activity.

On the basis that this is the only activity of the company, I believe that the ‘trading’ requirement of capital gains tax entrepreneurs’ relief is satisfied, despite the ‘passive’ conduct of the company itself which generally is an indicator of ‘investment’.

I suspect that business property relief is likely to be denied, notwithstanding the Graham decision in which references were made to ‘additional services provided’ and the number of working hours activities required, both of which could be argued here.

Do readers agree with my analysis?

Query 19,527 – Hotelier.

Irish problem

Irish VAT issue for online clothes retailer.

One of our audit clients is a major clothing retailer and all of the company sales are generated online and all sales are business to consumer (B2C).

The finance director has approached us and has told us that, since 2013, the company has made annual sales of about £500,000 including VAT to Irish-based customers. Further, it has always charged 20% UK VAT on these sales, apart from children’s clothing which is zero rated. She realises that the company should have registered for VAT in Ireland in March 2013 under the distance selling rules, so there is now a major VAT problem.

What are readers’ thoughts on how this problem should be resolved, both historically and moving forward? All stock is held in the UK and despatched to customers – there is no warehouse or office in Ireland.

Query 19,528 – Versachy.

Check confusion

VAT and PAYE periods within a corporation tax enquiry.

In February 2020, our corporate client was informed by HMRC that they are subject to a ‘check of company tax return’ (FA 1998, Sch 18 para 24(1)) for the accounting period of 12 months to 31 March 2018.

The return concerned was delivered to HMRC before the filing date so that, in accordance with the same paragraph, ‘notice of enquiry may be given at any time up to 12 months from the day on which the return was delivered’. In terms of ‘time limits’ the enquiry thus seems valid.

The same correspondence sets out the ‘scope of enquiry’ and states that it will include VAT (‘possibly going back up to four years’) and PAYE aspects – for the two tax years which fall into the corporation tax accounting period.

I am concerned with the application of time limits as to the latter two items. While I accept that HMRC can go back up to four years on PAYE and VAT matters, it does not appear that this power is conferred by para 24. The company’s VAT quarters are not calendar quarters, so the VAT and PAYE aspects do not perfectly align with the accounting period to 31 March.

Would readers agree that the correspondence in the format described above suggests that only VAT and PAYE periods falling within the accounting periods of the corporation tax return can be referred to here? Also, for HMRC to revert to any earlier years, should a separate check under the appropriate legal provisions have been requested?

I look forward to receiving advice from Taxation readers.

Query 19,529 – Wonderer.

Equality payment

Tax on a payment to correct discrimination.

My client is a woman who was taken on as an employee of a company in a managerial role about four years ago. A colleague of hers is in a very similar managerial position and their duties are, to all intents and purposes, virtually identical. In fact, the two of them were taken on by the company at the same time.

At the end of last year, my client discovered that her colleague is being paid about £15,000 a year more than her. Naturally, she was not happy and took this up with the company directors and the human resources department.

It has been agreed that the company will increase her salary and will pay the £60,000 arrears.

My question is how this should be treated for income tax and National Insurance purposes. If it is paid through PAYE, as I assume it should be, most of this payment will be subject to higher rate income tax, whereas her National Insurance liability will, I imagine, be lower. Is there any provision for spreading the payment over the four years to which it relates to reduce the income tax liability?

Query 19,530 – Leveller.

Issue: 4735 / Categories: Forum & Feedback
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