Taxation logo taxation mission text

Since 1927 the leading authority on tax law, practice and administration

New Queries: 1 July 2021

29 June 2021
Issue: 4798 / Categories: Forum & Feedback

Property distribution

Negligible value claim made by a sole shareholder.

My client acquired the single £1 share of PropCo for £100,000 in January 2017. At the time of the acquisition, PropCo’s balance sheet showed an investment property of £180,000 against a bank loan of the same amount. The company had no other assets or liabilities and the rental income was mostly met by expenses. The market value of the property at the time of acquisition was £280,000.

The client has now received an offer to sell the property for £280,000 which he intends to accept.

On the company’s end, the bank loan would be repaid, a capital gains tax liability would arise on the difference between cost to proceeds (being £100,000) and some £81,000 would be available for distribution. Once distributed, the company is understood to have no value.

Are there any grounds for a negligible value claim be made by the shareholder, given that the shares for which he paid £100,000 are now of no value?

I would appreciate readers’ views.

Query 19,779 – Sheller.


VAT on EU software downloads.

We have a client who downloads software from an EU country on a regular basis, but this only amounts to about £4,000 in total for the entire year. The client is not VAT registered. Previously, he was liable for VAT charged by the EU country at their rate of VAT. It would now seem that he is not charged any VAT.

If my understanding is correct, this would make it more economic to download such software from abroad rather than to use a UK alternative. But surely this cannot be what was intended.

Can readers tell me if I might be missing something?

Query 19,780 – Bensden.

Double tax treaty

Residency status of Saudi Arabian expat worker.

My client works for a company in Saudi Arabia and last year was non-resident in the UK.

For 2020-21, he has been in the UK for 292 days because his father had died, Covid restrictions and his back surgery. After taking off 60 days for exceptional circumstances, he has a day count of 232, which makes him UK resident under the statutory residence test.

As a UK resident, I believe he will be subject to UK tax on the whole of his Saudi Arabia salary, which is £1.6m. I believe he is only able to reduce the days according to actual workdays in each country if he is non-UK resident.

However, if he is considered resident in both the UK and Saudi Arabia, we will be able to turn to the UK/Saudi Arabia double tax treaty to decide which country treats him as resident.

The Saudi Arabia residence terms suggest that an individual is resident in Saudi Arabia for a taxable year if he has a permanent place of residence in Saudi Arabia and resides in Saudi Arabia for a total period of not less than 30 days in the taxable year; or if he is resident in Saudi Arabi for a period of not less than 183 days in the taxable year.

Based on the first condition, our client is resident in Saudi Arabia.

The first factor in the double taxation treaty is where he has a permanent home. The legislation suggests that the home must be for his permanent use as opposed to short duration occupation. So, if his permanent home is in Saudi Arabia, we can claim that he is non-UK resident under the terms of the treaty.

Please would readers confirm whether this is correct.

Query 19,781 – Expat.

VAT registration

Is VAT registration needed for a boxing club?

I act for a new community interest company (CIC) which will be fully funded by a wealthy benefactor. The company’s sole activity will be to promote mental and physical health in young people through boxing lessons and training routines. The CIC will employ two staff on its payroll and also pay a local gym to hire its facilities. There will be catering expenses as well, to encourage good nutritional habits.

We would like to avoid registering the CIC for VAT but the benefactor has asked us to raise a quarterly invoice to his company for all the costs we incur, up to annual limit of £100,000. As this amount is over the VAT threshold of £85,000, must we charge VAT?

Alternatively, should we register for VAT anyway and charge him £100,000 plus VAT, on the basis that the payment could be for ‘sponsorship’ and the company can then claim input tax on its own returns?

We could perhaps promote his company with advertisements on our new website. If the CIC was registered for VAT, it could then claim input tax on the gym hire and catering expenses, which would reduce its costs. Alternatively, does the CIC get any VAT concessions through the charity legislation?

Readers’ thoughts would be appreciated.

Query 19,782 – Cooper Man.

Issue: 4798 / Categories: Forum & Feedback
back to top icon