Was extension incorrectly included in CGS?
A new client has an unusual situation with the capital goods scheme (CGS) and a property owned by his business, which is wholly used for trading purposes.
Basically, my client treated an extension to the property three years ago as being subject to the scheme because the total project cost was expected to be £260,000 plus VAT. As my client is partially exempt, the initial input tax claim three years ago – the base year – was 70% of the total input tax, based on the partial exemption standard method. In years 2 and 3, the exempt income increased to 35% and 40%, producing input tax claw-backs with the annual adjustments for the scheme.
I raised a query with my client why the fixed asset additions in the balance sheet – produced by his previous accountant – was only £245,000 and he said that it was because the builder offered prompt payment discounts totalling £15,000, reducing the total cost project cost to this amount.
My question is simple: should the annual adjustments made in years 2 and 3 be treated as an error on the basis that the inclusion of the project in the CGS was incorrect be-cause the actual cost was less than £250,000 excluding VAT.
Query 20,751– Mexican Wave.
Edelweiss
My client’s Swiss investment account is a mixed fund containing:
- capital inherited before she became resident in the UK;
- capital gains and losses, income gains and losses and a small amount of income that was untaxed in the period between 1991-92 and 2007-08 when she was foreign domiciled and using the remittance basis; and
- capital gains and losses taxed on the arising basis since 2008-09, the income having probably been remitted.
In 2007-08, she took the decision to realise everything and be in cash. The cash was reinvested during 2008-09.
One of the investments was a US infrastructure ‘closed end’ fund (UK equivalent is a quoted leveraged investment trust), which she still holds today. It has quadrupled in GBP terms since 2009. If she sold the position, she would have arising CGT tax to pay and could repatriate the realised profit to the UK with no further tax; I believe that this ‘last in first out’ scheme will continue unchanged. However, the cost portion of the proceeds is still a mixed fund and would attract further tax if remitted.
I have five questions for Taxation readers, as follows.
- Can she use the temporary repatriation facility (TRF) to ‘clean’ the cost portion of the position?
- Would the payment of TRF somehow be formally tied to the position, or is it a general prepayment usable against any remittance of mixed funds?
- If we sell the fund and invest in another offshore security rather than repatriating, how is TRF managed administratively?
- If the mixed fund is 50% capital and 25% each for income and CGT, is the TRF 12% a good deal?
- Is said back-of-envelope guess re the mixed fund more at risk going forward because TRF now exists?
Query 20,752– Highlander.
Under the influence
My client is developing an online presence and business as an influencer. This is a new type of trading activity to me, and I should be grateful for any general advice and information. Two initial questions in particular have arisen.
The first are the costs that the client incurs on personal grooming and beauty treatments. Generally, I would say that these fail the ‘wholly and exclusively’ rule, but is that the case here? I have it in mind that television presenters may be able to claim such costs and they might be allowed for a specific photoshoot. But my client is, in effect, having a photoshoot on an almost daily basis as she makes videos for regular uploading to the internet. These costs will be quite considerable on an annual basis, but I would not like to omit a claim if they are allowable.
The second question is regarding beauty products and other goods that my client is sent, free of charge, to promote in her videos. Should these be declared as income as part of the profits of her trade? She may use a small amount of the products – and will likewise demonstrate how accessories are used – when creating content, but I understand that much of this is then given away to friends and family.
Thoughts from readers are welcome.
Query 20,753– Helen.
Overdrawn director’s account
My new client is the director and shareholder of a close trading company. His loan account was overdrawn by about £50,000 at 5 April 2026.
The company’s board minutes and accounts show that interest is charged on the overdrawn balance at HMRC’s official rate, but interest was not actually paid. Instead, the company calculated the interest and added it to the loan account, increasing the debt. The company has recognised the accrued interest as income in its accounts.
Does a taxable benefit in kind arise? The company thinks not, saying that accruing the interest in this way counts as interest paid. Alternatively, does a benefit arise because interest has not actually been paid?
Should the company report a beneficial loan on form P11D and account for class 1A National Insurance? Would the answer be different if the interest was paid after the end of the tax year – or indeed several years later? Could any adjustment or claim then be made by the director?
Query 20,754– Debtor.
