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New Queries: 25 March 2021

24 March 2021
Issue: 4785 / Categories: Forum & Feedback

Property company

Treatment of withdrawal of property funds from company.

We have been approached by a new client who, with his wife, owned a property company that owned just one property.

The couple had £278,000 of share capital divided equally between them. In January 2020, the property was sold and after the payment of corporation tax the company was left with £400,000 in the bank.

Unfortunately, my client was unaware that he could not just wind up a company with more than £25,000 in assets under the capital gains tax rules. In March 2020, the couple withdrew all the money from the bank and the registrar of companies was requested to strike off the company in September 2020. This would obviously be problematic if the £400,000 was treated as a distribution.

My suggestion is to treat the withdrawal as a directors’ loan account, have the company reinstated and then arrange for a members’ voluntary liquidation setting the loan against the proceeds on the liquidation.

My concern is that we have to draw up a balance sheet at 30 September 2020 and this will show a directors’ loan account. If the courts do not agree to reinstate the company because the only reason for doing so is to benefit the shareholders and not the company itself, then we could be faced with a balance sheet showing a debtor which could fall into the hands of the Crown as bona vacantia.

Do readers consider that my idea is sound? Can they allay my fears of the risk of losing the whole sum and do they have any other suggestions? I would say that the difference in tax between the MVL and a distribution would be in the region of £123,000.

I hope readers can assist with replies.

Query 19,727 – Thorn.

Company shares

Ability and effect of loaning company shares.

I have client who owns 50% of a limited company, which is a property investment business.

The client has asked if he could loan his shares in the company to either his adult children or a company owned by his children. Is such a loan possible? If it is possible, how would dividends paid on the shares be treated after the loan? Would it be income belonging to the children/their company and would this be seen as a further loan or gift by the parent?

Readers’ thoughts would be most welcome.

Query 19,728 – Len.

Cycle to work scheme

Super deduction on the cycle to work scheme.

I read Mike Thexton’s article on the cycle to work scheme in last week’s issue with great interest. It occurred to me that the employer’s financial position would be even better as a result of the super deduction rules announced in the Budget, because the company would obtain a deduction of 130% of the cost of the cycle.

But is that right? Section 9(2) defines qualifying expenditure for the super deduction. Subsection (d) excludes expenditure within any of the general exclusions in the Capital Allowances Act 2001, s 46(2). General exclusion 6 in s 46(2) refers to expenditure on the provision of plant or machinery for leasing ‘whether in the course of trade or otherwise’.

So, is making a cycle available to an employee the provision of an asset for leasing? (It does not matter that the company does not have a leasing trade, because of the words ‘or otherwise’.) Instinctively, this does not feel like a lease, but I cannot find any definitive definition or guidance on the matter.

It could, I suppose, be argued that if the cycle is provided under a salary sacrifice arrangement the employee is giving consideration for the use of the asset by forgoing some salary. Does that make a difference? It would seem very odd if the availability of the super deduction depended on whether the cycle was provided in addition to normal salary or as an alternative to part of existing salary.

Do Taxation readers have any insight into this question?

Query 19,729 – Velocipede.

Zero rating

Can charity obtain zero-rated VAT on costs of new building?

I act as trustee for a charity that has three sources of income: course fees; donations; and council grants. The council grants are not target based but help to subsidise the courses. The courses encourage outdoor exercise and recreational activities for people with mental health challenges – each person pays a fee to help towards tutor and other costs but a profit is never made on any event.

We intend to construct a new building on some land owned by a farmer – the farmer will rent the land to us on a 999-year lease for a peppercorn rent of £1.

We are not registered for VAT but is there scope to obtain zero rating on the project costs? The building will be used for staff administration, course organisation and then charitable purposes – the free use of workstations for people who need a computer to apply for jobs, benefits, support, etc.

Secondly, if zero rating was possible, would our proposed structure qualify as a ‘building’? It is likely to be a pre-fab structure sitting on a concrete pad and possibly secured to the ground but probably without the normal structural foundations for a more substantial building. Our project costs would be for the structure itself, ground works and then related services, eg electricity, plumbing, and fitting a kitchen area.

Readers’ thoughts would be appreciated.

Query 19,730 – Freddie Flintstone.

Issue: 4785 / Categories: Forum & Feedback
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