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New queries: 10 June 2021

08 June 2021
Issue: 4795 / Categories: Forum & Feedback

Bounce back loans

Adviser’s concern over abuse of bounce back loans.

Many of my clients have taken bounce back loans (BBLs). For most they have been a lifeline but there are some who appear to have withdrawn funds from their companies and use them to buy personal assets or pay off personal debt.

Doing this creates an overdrawn loan account and CTA 2010, s 455 tax. The advice from the man in the pub is that all you have to do is not file accounts or tax returns and let the company be struck off. Owner-managers did not have to give personal guarantees for BBLs and the ‘word on the street’ is that in most cases insolvency practitioners will not think it economic to try to recover the loan account or the original loan and that HMRC will not even know about the s 455 tax and, even if it did, will not chase it.

This is of course completely unacceptable. Is there anything I can do to persuade these clients not to do this? Clearly I cannot continue to act for any client who takes this course but what else can I do? Presumably I have to make a suspicious activity report. What are my obligations to any insolvency practitioner who is appointed?

How do other readers react if this is suggested by their clients?

Query 19,767 – Adviser.


Tax relief following the sale and liquidation of company.

My client is in his late 60s and owns all of the shares of Y Ltd, a general accountancy practice. Y Ltd will be selling all its assets and goodwill to another unconnected practice Z Ltd.

The agreement is that the liabilities and potential liabilities will remain with Y Ltd. The ICAEW recommends six years of run-off cover for professional indemnity insurance (PII). After the sale, Mr X will liquidate Y Ltd as soon as possible but within three years of sale to qualify for business asset disposal relief. The likely PII premiums for run-off cover are high.

Mr X had traded as a sole practitioner until 2011 when the practice was incorporated. How can a deduction be obtained by Y Ltd for the premiums after the sale to Z Ltd, when it will no longer have trading income for, say, up to three years? Also, how can Mr X obtain any tax relief after liquidation of Y Ltd? Can it be a cost of disposal allowable for capital gains tax purposes?

Any other observations from readers will be welcome.

Query 19,768 – Twilight.

Rental income

Treatment of rental income for non-resident.

We have a new client who is in the armed forces. He is being seconded for two years to Cyprus. My understanding is that so long as he continues to be paid by the army his employment income will be taxed as though he is UK resident.

However, he also has rental income, interest and dividends, which should be taxed on the basis that he is not resident. The double tax agreement takes the dividends and interest outside the UK tax net, but the rental income will remain taxable here.

I would normally expect the income to be covered by personal allowances for a non-resident. However, his salary will use the allowances and basic rate band, so that the rental income would attract higher rate tax if included in self assessment. Is this correct? If not, what is the mechanism for reporting this rental income to achieve the correct tax position?

I look forward to hearing from readers.

Query 19,769 – Querist.

Input tax reclaim

Input tax on farm water improvements.

My client is VAT registered as a farmer, carrying out traditional arable and livestock activities. There is a farmhouse and various barns on the site.

On the same premises, a separate VAT registered entity owns a manor house that is used for weddings and conferences; it includes 15 bedrooms for overnight stays. There are also ten small cottages that are owned by a separate trust and rent out to tenants; this a third entity and not VAT registered.

The local authority has instructed my client to carry out major renovation works on the water system that serves the entire site from a reservoir, which includes both groundwork and pipe improvements – it will be carried out by a contractor who will charge my client £100,000 plus VAT.

My question is about VAT and whether my client can fully claim input tax on the work as the local authority instruction is to him and not the other entities because the water supply is on his land.

Would it help if my client partly recharged the manor house for some of the work and charged VAT? The manor house could then claim input tax. The two entities are within the same family so this would be possible.

If readers think that my client cannot reclaim the full £20,000 of input tax, how much should he claim on his VAT return?

Readers’ help would be appreciated.

Query 19,770 – Emmerdale.

Issue: 4795 / Categories: Forum & Feedback
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