Charging too much VAT on first invoice of phased contract?
One of my clients is buying some IT equipment but the invoicing arrangement is somewhat unusual because the supplier will be doing follow-up work to install the equipment in my client’s office. Here are some numbers:
- Contract value £20,000 plus VAT – the goods will be delivered to my client’s office in advance of any installation work and my client will take ownership of them.
- The supplier will be paid in three instalments – 50%, 25% and 25% – over a period of six months while the installation is completed. However, the contract documents say that the first invoice for 50% will be issued one week after the delivery of goods, charging the full amount of VAT on the contract, ie an invoice for £10,000 + £4,000 VAT = £14,000. My client must pay this amount within 14 days.
- The second and third invoices will be issued three and six months later for £5,000 each and no VAT.
Is this invoicing arrangement correct as far as the VAT tax point rules are concerned? And can my client claim input tax of £4,000 when the first payment is made to the supplier or only £14,000 x 1/6 on this date (applying the VAT fraction to the payment) and then £5,000 x 1/6 for the subsequent payments.
Query 20,607 – Juggler.
Can the nil rate band be used?
A client died in January 2025, and I am endeavouring to understand the impact for inheritance tax purposes of various lifetime gifts that she made.
The first gift was in March 2011, when £300,000 was transferred to a discretionary trust for all her grandchildren. This gift was of course within the nil rate band although the trust fund is now valued at around £500,000.
In February 2018 she gave £150,000 each to her two children.
In April 2021 she added a further £100,000 to the grandchildren’s trust.
Then in June 2024, as her health was failing, she gave a further £100,000 to each of her two children. She was advised that this would reduce her estate below £2m and thus preserve the availability of the residence nil rate band on her death.
The value of her estate on death in January 2025 has been calculated at £1,900,000 and her will leaves legacies of £500,000 to each of her two children and the residue to her brother and sister.
How is the inheritance tax calculated on each of the gifts and who pays it? It was of course assumed at the time of the addition to the trust that it was within the available nil rate band. Is it correct that the gifts in 2024 mean the residence nil rate band is available on death and, if so, who will get the benefit of it?
Query 20,608 – Executor.
Can koi carp be sold separately from a property sale?
My client is downsizing from his country house to a smaller property. The house was let for a period of time before it became his main residence, so there will be an element of chargeable gain, but otherwise I would think this was quite straightforward for tax purposes.
However, over many years the client has spent thousands of pounds on his koi carp collection. Rather than stress the fish by moving them, my client is going to sell them to the purchasers of his old house, where they can stay in the substantial lake that was built for them – also at considerable expense. A large five-figure sum has been factored in as part of the overall price for the fish. This will be a second property for the purchaser.
Should the sum for the fish be included in the house price or can this be dealt with separately and, if so, is that likely to cause a stamp duty land tax issue? Will HMRC consider that the house purchase price has been artificially reduced?
Can the seller include the cost of the pond construction and landscaping in the cost of the property and could a loss be claimed on the sale of the fish?
How does HMRC typically approach the valuation and classification of such animals in the context of property transactions? Is there specific guidance on this? I would welcome any clarification on how to apportion the price and report such a transaction for tax compliance.
Query 20,609 – Caliban.
Piggy in the middle
I have acted for some time for a successful catering business. This was run as a partnership by a husband and wife until they divorced: the business was then continued by the husband only. He had always been the driving force in the business. Profits were split 50-50, largely to ensure that the wife made full use of her personal allowance and basic/higher rate bands. The husband and wife were both clients of mine until the divorce – now only the husband is still my client.
During my work on the accounts this year it has become clear to me that there had been some suppression of profits in earlier years – this was done by the husband and the ex-wife knew nothing about it. On challenge, the husband has admitted this and has asked me to prepare a disclosure to HMRC. What are my obligations in respect of the wife? As a 50-50 partner she would have been taxable on half of the suppressed profits, even though she knew nothing about them. The husband has said that he would be prepared to pay the tax on all the suppressed profits and leave his ex-wife’s position undisturbed. Is that possible, given there was a partnership? I also imagine that he hopes that if he pays all the tax, he won’t have to reveal anything to his ex-wife that might affect the divorce settlement, which has been reached.
Has anybody encountered this situation before? I do not want to be stuck in a messy argument between the couple.
Query 20,610 – Counsellor.
