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Translation of foreign currency transactions.
Readers’ views would be welcomed on the correct method to translate foreign currency transactions into sterling (£). In particular, is there one approved method, or does anything reasonable go, including using whichever exchange rate website a search engine finds?
For instance: dividends received from overseas companies. Many clients use online portals and these sites show the dates the dividends were credited by the portal, not when they were declared. And clients sometimes change the foreign currency into £ some time later. Can one use the £ actually received, or must the rate at the date of crediting, for instance, be used.
Some clients have overseas rental properties. Should annual profits be worked out in foreign currency, and then translated at an average rate; or should each transaction be translated at its spot rate?
Finally, with all currencies there is a difference between buy and sell prices, while sites which give historical rates typically give one figure per day.
The writer has tried to be reasonable and consistent in his approach over the years, but sometimes sees large differences in rates, and these can on occasion make reasonable sized differences in the figures to report. Is there is a method and a source of rates which are regarded as correct?
Query 20,223 – Foreigner.
Will the spotlight be on me?
My client has implemented a tax planning arrangement which seems to be very similar to that highlighted in Spotlight 63 – property business arrangements involving hybrids. I did not advise on the planning. I didn’t know about it until after the event, but I did, reluctantly, complete the relevant tax returns, basing using information given by the scheme provider.
I have alerted my client to the HMRC spotlight. I advised him that he should instruct me to approach HMRC on his behalf in order to amend his returns and withdraw from the arrangement. He has asked me whether he is obliged to do this. He accepts that, if HMRC challenges the arrangement, he will have to concede but has said, in effect, that it is up to HMRC to make the running and he doesn’t see why he should do anything at this stage. I’m trying to persuade him otherwise and I would be grateful for any advice on how to convince him.
Separately I am unsure of my own professional obligations here: I didn’t advise on the scheme but did complete the return. Do I have to advise him that if he doesn’t amend the return I must cease to act? Spotlight 63 is only HMRC’s opinion and not a definitely statement of the law, although I suspect that a tribunal would agree with HMRC’s view.
Query 20,224 – Worried.
Tax costs for splitting business.
Our client has a trading company that is owned by two sets of brothers and their wives (the shareholding is split 25% for each shareholder). The company (Co X) runs a successful gym chain over two locations in the UK – with one brother essentially running one location (site A) and the other brother involved in the second location (site B). The brothers have had a disagreement and want to go their separate ways. Brother A and his wife want to retain the current brand and run the business through Co X on their own while the brother B and his wife are happy to rebrand and start a different gym under a different name and company.
The only other assets held by Co X (other than the brand and customer lists) is stock and equipment. The company does not own the buildings from which the gym trade is run. Instead, the ownership of the building at site A is personally owned by brother A and the ownership of site B owned by brother B. Brother A does not have the money to buy out brother B so we are considering doing a purchase of own shares. We have assumed that capital gains treatment should be available but will be recommending clearance is obtained in advance (including clearance in relation to the transactions in securities rules).
Are there any better options for splitting the business? I’ve read about partition demergers (done via a capital reduction). Could that be a better option?
The only typical tax cost in such cases appears to be the stamp duty at 0.5% (being payable on 50% of the business, ie the part that is being demerged). However, I’m unsure of the process and would welcome readers’ thoughts on any potential stumbling blocks with this.
Query 20,225 – CrossFit Fan.
Is deregistration an option for property owner?
I have received an email from a property managing agent for whom we prepare a lot of service charge accounts for each of the properties they manage. The service charges that are charged to each tenant do not normally include VAT. The client’s email is as follows and I’d welcome readers’ thoughts on it:
This is a potential new client who developed a building comprising one ground floor shop with three flats above it. He owns it personally and has been self-managing and doing the accounts and VAT. He has been charging the shop VAT, but not the flats. Do the VAT rules allow this? I don’t think he has any other developments where it would be advantageous to charge VAT, so his annual VATable income is always less than £83,000. I think it may be simplest to cancel their VAT registration by deregistering. Would this be a problem?
Query 20,226 – Confused.
Queries and replies
Send queries and replies to taxation@lexisnexis.co.uk. For full T&Cs visit: tinyurl.com/RFguidelines.
