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Share buyback
Multiple completion contracts used in share buyback.
My client is looking to extract himself from a company in which he holds 60% of the shares through a purchase of own shares. I am satisfied that the requirements for capital treatment would apply if all of the shares were bought back at once but funding is not available so the plan is that there will be an exit in three equal tranches.
I know there is a problem if there are three separate disposals but understand it is possible to achieve what my client wants by using multiple completion contracts. This should enable the entire beneficial interest of the shareholder to be disposed of at the date of the contract, and thus meet the requirements for capital treatment.
However, I am confused by HMRC’s guidance at CG58644. This relates to the ‘connection test’ post buyback, where the shareholder must not directly or indirectly possess or be entitled to acquire more than 30% of the issued ordinary shares, loan capital or voting power or rights to more than 30% of the assets that would be available for distribution on a winding up.
The HMRC guidance states: ‘This is especially important when considering multiple completion contracts ... The connection test is based on the legal ownership, not the beneficial ownership, so the individual may still be connected to the company even if the beneficial ownership is transferred.’
This is at odds with my understanding of multiple completion contracts. If the connection test is based on legal ownership, rather than beneficial ownership, does it mean that it cannot apply where the shareholder’s legal ownership continues above 30%? In my case that would be a problem when the holding went down from 60% to 40%.
Can readers provide some reassurance?
Query 19,711 – Confused.
Caravan park
Temporary VAT cut for hospitality sector.
I wondered whether readers could clarify the position with respect to a caravan park taking advance bookings and deposits before the 31 March 2021 where the balance is received and the stay completed after the 31 March 2021.
My interpretation is that the deposit should include VAT at the reduced rate but that the balance would be at the standard rate.
I look forward to hearing from Taxation readers.
Query 19,712 – Camper.
Foreign income
Tax status of UK resident’s funds originating in Egypt.
Our client has recently come to live in the UK from Egypt where she had lived since birth. Her financial arrangements (bank accounts, employment, pensions and the like) are being established in the UK, but she had left in Egypt some interest-bearing bank deposits and a portfolio of stocks managed by a local investment house.
Having considered the statutory resident tests, we are comfortable that our client would be tax resident in the UK in 2020-21.
The client does not wish to trouble herself with the complexities imposed by the ‘separation of funds’ requirements for a remittance basis treatment to be effective and, given the small amounts involved, she is willing to be taxed on an arising basis on her worldwide income.
It seems clear that interest and dividend income arising in her former home country would now be taxed in the UK subject to the Egypt-UK double tax treaty and any credit for Egyptian tax may apply as set out by the treaty.
However, some of the holdings in the investment portfolio (both dividends and interest) suffered tax deducted at source both in the US and in Egypt.
The client states that updating the investment house with details of the UK tax resident-status would be too cumbersome and wonders whether there is scope to claim credit in respect of the Egyptian tax suffered on the US-sourced income, or would this have to be forgone in this case?
I look forward to receiving any opinions from Taxation readers.
Query 19,713 – Geeza.
Offshore surveys
Are charges for oil exploration services a land supply for VAT?
I act for a company that uses specialised software to process offshore survey data for companies involved in oil and gas exploration and wind farm development.
They take offshore survey data and process this to reveal images of the subsurface for gas and oil exploration and wind farm development, acting for clients that hold licences to that area of the seabed.
I presume these services relate to land as far as the place of supply rules for VAT are concerned?
The work is always carried out for UK business clients but for one particular project where 75% of the land being surveyed is outside the UK’s jurisdiction of 12 miles, but the other 25% is not.
I wonder whether my client should charge VAT on 25% of the fee or is the relevant issue where the survey report will be produced – namely, in our client’s temporary office in Aberdeen?
Finally, one site is in Irish territorial waters. What is the VAT position here?
My thinking is that the client should just charge UK VAT on all fees, on the basis that the UK clients they work for can all claim input tax so there are no partial exemption issues.
Finally, if we do not charge VAT on some income, does this create an input tax restriction on the UK costs incurred by my client?
Thoughts from Taxation readers on how to resolve these various issues would be most appreciated.
Query 19,714 – JR.
