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New queries: 16 January 2020

14 January 2020
Issue: 4727 / Categories: Forum & Feedback

Saudi sales; Selling up; Rabbit in headlights; Conundrum 

Saudi sales

Export evidence and VAT assessment.

My client buys and sells furniture and recently had a VAT visit from HMRC, which resulted in an assessment of £80,000 being raised in relation to a lack of evidence to support the zero rating of export sales to Saudi Arabia over the past three years. An interest charge of £2,100 was also levied.

In effect, the officer treated the sales as being standard rated and sold in the UK, assessing output tax based on one-sixth of the selling price.

The client assures me that he now has the proper evidence from the shipping agent for all of these sales and has asked me to include £82,100 on the next VAT return to, in effect, cancel the assessment. He says this action is justified by VAT Notice 703, para 11.3 about belatedly obtaining export evidence but I have my doubts on this course of action.

What do Taxation readers think?

Query 19,495 – Top Drawer.

Selling up

Entrepreneurs’ relief on land sale for partnerships.

One of our clients was a partner in a partnership (not an LLP) with one other partner. When the partnership was originally set up, they purchased an office building which they rented out for many years until 2016. The property became vacant and they converted it to residential use before selling in October 2018, when the partnership ended.

I understand that a non-trading partnership cannot claim capital gains tax entrepreneurs’ relief. However, given the specific circumstances of this case, would this business qualify as a trading partnership and be able to claim relief?

I look forward to hearing from readers.

Query 19,496 – Trader.

Rabbit in headlights

Treatment of UK-based earnings for non-resident.

Our client is employed at a high salary by the UK permanent establishment of a business with international operations. All wages, with no deductions, are taxed under UK PAYE and the full amount is paid into a UK bank account.

The client is not a statutory director, but has a commanding role in the company such that any of the duties wherever performed around the globe would not be incidental.

Our understanding of the statutory residence test is that the client has two UK ties and would be non-UK resident. Based on working day counts, HMRC’s manual at RDRM11150 defines this as 110 in his first year here. We think he may be resident in Belgium.

The double tax agreement, article 15 indicates that the other state only taxes income from an employment exercised in that state. This being the case, we cannot see that any state owns the right to tax all income wherever performed.

As such, we think ITEPA 2003, s 27 would apply to UK-based earnings if the client is not UK resident. This would tax only that part of the emolument relating to work when he is physically present here, based on working days. If the non-UK work is not incidental to the UK duties, this could be, say, 110/215ths or so in his first year due to year splitting.

Alternatively, are we mis-reading this legislation because it seems to focus more on taxing foreign employments rather than exempting pay from UK tax on overseas work?

In reply to our informal non-statutory clearance application, HMRC has not indicated either way and says the legislation is clear enough.

We are nervous of incurring a penalty if we reclaim tax that is then shown not to be due.

Can Taxation readers enlighten us?

Query 19,497 – Roger R.


VAT registration on transfer of business as a going concern.

Our client company is not yet trading but is in the process of acquiring a business. Employees will be transferred under the Transfer of Undertakings (Protection of Employment) Regulations.

The business in question makes VAT-exempt supplies of insurance, some of which are supplied in accordance with SI 1993/3121, art 3, such that input VAT recovery is possible in relation to such supplies under VATA 1994, s 26(2) (c). This means that the existing business owner is voluntarily VAT registered under VATA 1994, Sch 1, para 10.

Ideally, the transfer (of, in essence, goodwill) will fall within SI 1995/1268, art 5 (supply of assets outside the scope of VAT when transferred with a business as a going concern), such that VAT will not fall as a cost to either party. However, one of the requirements of art 5 is that, ‘where the transferor is a taxable person, the transferee is already, or immediately becomes as a result of the transfer, a taxable person’.

A taxable person is, of course, a person that is, or is required to be, registered for VAT, and we believe that the ‘immediately becomes’ part of the test is a reference to VATA 1994, s 49 and the requirement to be registered by reference to taxable supplies already made by the transferee.

Accordingly, we believe that, for transfer of a going concern (TOGC) treatment to apply, our client must actually be VAT registered before transfer. Since our client intends to make no supplies other than exempt supplies, the only basis of registration is voluntary registration under the previously mentioned para 10.

The two alternative requirements of para 10(1) are both framed in the present tense, such that neither can be satisfied by our client until after transfer has occurred. This therefore seems to prevent TOGC treatment.

Can readers offer their views and advice on this analysis. We understand that the existing owner has a number of similar business streams such that their deregistration is not a possibility.

Query 19,498 – Concerned.

Issue: 4727 / Categories: Forum & Feedback
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