Would tax liability arise on transfer of work?
My client is a consultant who works for several businesses. For many years she has been carrying out this work through her personal service company, but I do not believe there are any IR35 worries. My client’s husband assists in the business and she is now thinking that a partnership between them might be a better way to carry out the work. This will also allow them to divide the profits between them in a more flexible manner. There are no other employees and the work that is carried out is based on the professional knowledge of my client and her husband. I believe that the contract between my client and her main customer has a three-month notice period on either side. Some other less remunerative work is also carried out for other customers.
Can Taxation readers let me know whether there are any particular tax issues associated with transferring the business to a partnership. My main concern is whether this could be a treated as a disposal by the client or the company. However, because the work is centred on the client’s personal professional knowledge, I don’t see that there is any inherent capital value. The client is thinking that some work separate from the main contract could continue to be carried on by the company, mainly to keep the company active in case it was required in future. Would this complicate matters?
Query 20,523 – Adviser.
Can we apply to HMRC for a closure notice?
HMRC opened an enquiry into my client’s 2022-23 capital gains tax in June last year. It wanted more information about three transactions, which were a little complex, so the request was not unreasonable. We provided detailed explanations and further evidence.
Over the ensuing months, with more questions and more evidence, the department accepted that two of the transactions were fine. It is still pursuing the third, even though in my and my client’s view we have given enough information to demonstrate beyond reasonable doubt that this was a transaction at arm’s length and at market value.
My question is, do readers have any experience of applying for a closure notice? We cannot appeal because HMRC has not made a decision – it has not even said what the ‘correct’ answer should be. It just keeps asking questions. I would like to make HMRC to ‘put up or shut up’ (preferably the latter). Or should I just bite my lip and keep giving the answers?
Query 20,524 – Waterboarded.
Do ‘debt on a security’ rules apply to corporation tax?
A company client invested in £100,000 of loan notes issued by another UK company, secured over its assets by a debenture providing fixed and floating charges. The other company is not prospering, and the client is considering making an impairment provision against the book cost of the loan notes.
I understand that an impairment provision against a simple loan may give rise to a deductible ‘debit on non-trading loan relationships’, provided making the loan was within the commercial purposes of the company; does the fact that these are loan notes and secured by a charge make any difference?
I recall that there used to be special rules for a ‘debt on a security’, but I am not sure if that applies to corporation tax or only capital gains tax. Readers’ views would be welcome.
Query 20,525 – Polonius.
How does Northern Ireland base for customer affect VAT?
One of my clients is based in Manchester and has won a major contract to build an industrial chimney in Northern Ireland; the customer is also based in Northern Ireland and registered for VAT. It is a complicated deal and I am concerned about the VAT issues:
- The materials for the chimney will be shipped directly from Spain to Northern Ireland. As I understand it, this shipment will be zero rated as far as Spanish and UK VAT is concerned because Northern Ireland is still part of the EU. Or is this wrong? My client will be invoiced for the goods by the Spanish supplier.
- My client will be invoiced for design and project management services by a Slovakian business. Does this mean that the Slovakian company must register for VAT in Northern Ireland because it is a land supply relevant to a building in Belfast and charge my client VAT? Presumably my client can claim input tax?
- Will my client charge 20% UK VAT on the onward supply of goods and materials invoiced to the final customer? The direct labour for the job will be part of the invoice; this work will be carried out by workers employed by my client.
Readers’ help would be appreciated because the deal is for £3m, so a lot of tax is at stake.
Query 20,526 – Sooty.
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