Recalculate output tax after over use of a retailer scheme?
One of my clients trades as a general store – with four separate branches in different parts of the city – and has used the retailer scheme called apportionment scheme 1 to calculate how much output tax is payable each quarter; the business has standard rated, reduced rated and zero rated sales and has always found this scheme very easy because it avoids using a multi-button till at the point of sale.
My concern is that, three years ago, my client exceeded the scheme’s annual turnover limit of £1m excluding VAT. So, in theory, they should have withdrawn from the scheme in 2023. However, the turnover of all stores combined is about £1.2m and my thinking is that my client could adopt a point-of-sale calculation in one store moving forward and then the combined turnover of the other three stores will be less than £1m again, so the problem goes away. Or does it?
I am assuming that HMRC would not require my client to adopt a different scheme retrospectively back to 2023 because the scheme always gave accurate output tax figures, so there is no big underpayment lurking in the waters.
As a separate comment, it seems very unfair that HMRC has never adjusted the joining/leaving threshold for inflation. Could this be a reasonable excuse for my client not leaving the scheme?
Query 20,715 – Grocer Graham.
Currency conundrum on charitable donation
My client is a UK charity that carries out activities in countries that use the US dollar, so it has a dollar bank account. A regular donor has contacted the treasurer to say that he will receive some dollars on the sale of an investment, but he only has a sterling account. To avoid currency translation costs, he proposes to direct the proceeds to be paid to the charity. Would this qualify for gift aid? The rules require a ‘payment of money’ but do not specify a currency. Would his instruction be deemed to be ‘payment’, given that he would be deemed to receive the proceeds for CGT? And if it does qualify, how should the treasurer complete the gift aid claim form, which is of course in sterling?
Query 20,716 – Pass the Buck.
Who pays the piper?
My client’s parent has died. The parent owned 100% of the shares in a property investment company. There is a large inheritance tax (IHT) bill being paid in instalments, with interest accruing. The residue passes into a trust. The income is payable to the deceased’s son (my client) and on his death the trust ends in favour of various individuals. There is a power for the trustees to pay capital to the son.
There is no cash in the estate to pay the IHT and legacies. The executors tried to sell the company but could not find a buyer. They are now selling the properties and will then liquidate the company to meet the remaining liabilities.
As the sales progress, the company is building up its cash balance. Some of that cash has been used to pay the instalments of IHT. It is thought the best tax outcome is to treat those payments as loans made by the company to the estate. They will then be caught by the loan to the participator rules and corporation tax will be due on them, as the estate cannot repay them. If the payments are treated as dividends, it is understood that, while attracting income tax at the basic rate for the estate, they would ultimately be treated as taxable income of the son, potentially leaving him with a large income tax bill, even though that income was not paid to him.
Is this correct? If the loans are offset against the company assets on its liquidation, will it mean they are treated as repaid and the company can reclaim any corporation tax paid on them, so avoiding any liability to income tax for the company and estate? If so, it would seem to make sense to release more cash now as further loans, or is the position misunderstood?
Query 20,717 – Perplexed.
All or nothing?
A new client runs a plumbing business through a limited company of which he is the sole shareholder and director. There are no other employees. He has set up a standing order under which £2,000 a month is transferred from the company account to his personal bank account. There is no paperwork associated with the transfer. It appears that his previous adviser treated the £2,000 as two amounts: the amount up to the primary threshold as earnings and the balance as director’s loan. Real time information submissions were made for the first amount – though no PAYE or NIC was due.
I’m concerned that this may not have been correct. Given the lack of supporting documentation it seems to me that the whole payment must be one thing or the other: either salary, in which case there will be PAYE and NIC arrears, or a loan account, which would mean that the dividend declared each year to clear the loan account would not have been sufficient. I will advise the client to adopt a more rigorous procedure for the future, but what about the past? Can I advise him to let sleeping dogs lie or is some sort of disclosure to HMRC necessary?
Query 20,718 – Concerned.
New queries
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