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New queries: 2 May 2024

29 April 2024
Issue: 4934 / Categories: Forum & Feedback

Should holiday product testing be taxable?

We have recently taken on a corporate client, whose trade concerns acting as an agent to provide its customers with what might be described as ‘high end’ holiday and adventure trips and experiences.

Our query concerns the costs the company incurs on researching these products: from time-to-time certain employees will trial these products which the company then markets on behalf of the main suppliers. In some cases all the cost will be borne by the company; and in other cases some or all may be borne by the main supplier simply to encourage our client to include them on the list of products that it markets.

From the company’s perspective, we feel that whatever costs it bears should be allowable for corporation tax as these are costs the company believes it needs to incur to ensure as best it can, the quality and attraction of the products it is then marketing – though we would be interested if readers think differently.

Our main concern, though, is whether any benefit in kind falls to the employees involved in trialling these products: this can involve staying in exclusive hotels, eating at expensive restaurants, playing golf at golf resorts, taking part in helicopter trips and so on.

The company and, indeed, the employees would regard this as a necessary component of the company’s operations.

We would be grateful for readers’ views on whether (and, if so, the extent to which) there is a taxable benefit on the employees concerned. Also, might there be any procedures or practices that could be adopted when such holidays are being trialled, to mitigate any contention that the employees are deriving a benefit, or to mitigate the quantum of any benefit-in-kind that has to be accepted?

Query 20,323– Adventurer.

Can capital allowances be claimed on hearing surgery.

My client is a limited company managed by one sole director and shareholder.

The shareholder/director has been ‘hard of hearing’ from birth, using a hearing aid to work. Suddenly last year he lost all his hearing which made his hearing aid obsolete.

He was given a choice of having a cochlear implant procedure through the NHS, which meant waiting on a waiting list of over a year, or go private.

He decided to go private or face his business collapsing. He lent the company money to pay for an implant which includes a year’s contract with a hospital for audiologist and speech therapy.

I know there is legislation that states that if a firm provides a hearing aid for its employee, there is no benefit in kind. However, there is no specific mention of cochlear implants.

I would appreciate it if Taxation readers would discuss the benefit in kind implications and whether capital allowances could be claimed.

I look forward to your response.

Query 20,324– Unsure.

Can intercompany loans be tax neutral?

We have a successful client trading through a limited company with several staff.

The company has managed to build up cash savings of £750,000 on which negligible interest is being earned. There are negligible other fixed assets or working capital.

The two directors, who are both in their 40s, now wish to build up a property portfolio in the company. I have explained the issue with tainting business asset disposal relief.

A proposed solution is to set up a separate company owned by the two directors personally. The cash will be transferred to the new company by way of intercompany loan which will then be written off under the ‘connected’ provisions of the loan relationship rules so that there will be neither a tax credit or debit in each company

Readers’ views would be appreciated as to whether the write off of the intercompany loans would be tax neutral for both companies.

Query 20,325– Heron.

Was writing a novel really a business venture?

One of my clients is an author and chef who writes articles and newsletters about cooking. She has been very successful for many years and an acknowledged expert in her field and a respected writer. She trades through a limited company which is VAT registered.

As a personal challenge, she decided to write a novel with a view to getting it published – however, the publishers she approached all rejected the manuscript so she self-published instead on Amazon, with both a paperback and kindle version of the novel being available for purchase by subscribers. Unfortunately, the sales have been minimal and the total commission of £25 in the last 12 months earned by her company means that she has made a big trading loss because of costs incurred of £5,000 plus VAT, mainly linked to the fees charged by expert reviewers and advertising suppliers. HMRC has disallowed the company’s input tax claim of £1,000 on the basis that it was never a viable business venture, merely a personal activity of the director. The officer’s words were: ‘Some people try to claim VAT on buying a yacht, your client has written a novel instead.’

Do readers think the officer’s approach is correct? The company accounted for output tax on the £25 commission if that is relevant.

Query 20,326– JK.

Queries and replies

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Issue: 4934 / Categories: Forum & Feedback
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