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New queries: 2 July 2020

30 June 2020
Issue: 4750 / Categories: Forum & Feedback

Fifty percenter

Coronavirus job retention scheme phase II eligibility.

I have furloughed a client under the coronavirus job retention scheme. She is an osteopath who works through a company. She has been able to do no work up to now, apart from meeting her statutory obligations as a director, so I am happy that the claim is valid.

Because she was only paid £12,500 in 2019-20 (in early March), 80% of her monthly pay is £833.33. She is now able to work again but disinfecting everything between patients means that her earning capacity will be 50% of what it was.

Will she be eligible for any claim under phase II, given that her earning hours will be 50% of what they were? Alternatively, will she be ineligible because she will, in effect, be working full time and therefore not furloughed at all?

I look forward to replies.

Query 19,587 – Baffled.

A knock on the door

VAT split on mixed invoice for building work.

I act on behalf of a builder who has been issued with an assessment for underpaid output tax by HMRC. This was for a job he carried out three years ago for a property landlord. The landlord is not registered for VAT.

The building consisted of a ground floor shop and first floor office and my client charged 5% VAT on work being carried out on the first floor, which converted the office into a flat.

VAT on work relating to the shop was charged 20% VAT. However, the problem is that my client has only charged 20% VAT on one quarter of the work carried out to areas not specific to each floor; for example, the roofing works, concrete work in the yard, landscaping work at the front and the like.

The client charged 5% VAT on three quarters of the invoiced amount for these works. His basis of calculation is that three quarters of his labour time was spent working on the new flat, and only one quarter on the shop, so he applied the same percentage split for work on the shared parts. However, the HMRC officer says the split should have been 50/50; in other words, one floor is commercial and one floor is residential.

My question is twofold as follows.

  • Can the officer override the output tax charged by my client?
  • If so, is his use of this power justified by the facts of the job?

I hope Taxation readers can advise. Is there a foolproof way of calculating the percentages that should be charged to VAT at the differing rates? If there is, I would like to be able to advise my builder clients so they can avoid this issue arising in the future.

Query 19,588 – Kebab.


Business relief for inheritance tax on AIM shares.

A recent article in the finance pages of a national newspaper referred to the speculation on inheritance tax business property relief being withdrawn on alternative investment market (AIM) shares.

The article also referred to a method of preserving the relief by transferring such shares into a trust after they have been held for two years. The suggestion was that this cements the relief.

Do Taxation readers consider that this procedure would be effective, and what other advantages and disadvantages can they identify?

Is there anything else that I should be aware of when considering the tax advantages (or indeed disadvantages) of AIM shares?

Query 19,589 – Billy.

Genuine error

Application of s 459 in respect of inter-company loan.

I have a client, Mr E, who 100% owns two companies, X Ltd and Y Ltd, both of which have a year-end of 30 June.

Mr E had a credit balance of £1.25m in X Ltd at 30 June 2019 and during the year to 30 June 2020 he needed to draw £0.25m towards the purchase of investment property.

The intention was that this money should be drawn from X Ltd, but Mr E drew the money from Y Ltd in error. As a consequence of this error, Mr E still has a £1.25m credit balance with X Ltd, but is now overdrawn by £0.25m in Y Ltd.

Because this was a genuine error, our inclination is to:

  • process book entries that will reduce Mr E’s credit balance in X Ltd by £0.25m; and
  • put through an intercompany loan between X Ltd (debtor) and Y Ltd (creditor) of £0.25m in order to then eliminate Mr X’s overdrawn balance.

However, we are concerned that the £0.25m debtor balance in X Ltd will then be subject to tax under CTA 2010, s 455, by operation of s 459.

Mr X does not want to take any further dividends from the companies and the only alternative seems to be for Mr X to physically withdraw £0.25m from X Ltd to his own account and then pay the same amount back into Y Ltd in settlement of his overdrawn balance before 1 April 2021.

Except for the intercompany debt, this puts everybody in the same place as the book entries, and we shall be grateful for Taxation readers’ views on the application of s 459 in this situation.

I look forward to reading the replies.

Query 19,590 – Puzzled.

Issue: 4750 / Categories: Forum & Feedback
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