Deregistration dilemma: VAT accounting on final return
One of our clients deregistered from VAT on 31 March 2026 because he closed his sole trader consultancy business to take early retirement. He used the cash accounting scheme, so only accounted for output tax on a payments made and received basis. On the final return, unbeknown to us, he did not account for output tax of £2,000 on closing debtor invoices or claim input tax of £500 on unpaid purchase invoices. However, since then, an invoice for £8,000 plus VAT has turned into a bad debt. Overall, it seems that my client has overpaid VAT by £100 and we have suggested that these errors are ignored as a practical measure. Unfortunately, he had a bad experience with HMRC about ten years ago and has insisted that the letter of the law is applied. What should we do to correct the situation?
As a separate question, my client owned a laptop in his business, worth about £800, which he gifted to his wife when he closed his business; this was the only stock or fixed asset in his accounts, so I understand there are no VAT issues because the value is less than £1,000. Is this correct?
Query 20,807 – Dereg Dave.
The early bird catches the worm – or does it?
I act for a number of overseas individuals who each own a property company incorporated in their home country. Each company owns property in the UK and receives rental income from it. Because it is relatively easy to work out the tax liability, I let the owners know just after the year end how much tax is due and they often pay it straightaway to be sure that they don’t fall into arrears. These payments attract early payment interest from HMRC, which is subject to corporation tax. Will that interest be eligible for double tax relief, assuming the relevant treaty has a standard clause dealing with interest?
Query 20,808 – Traveller.
Alphabetti spaghetti
I act for a large private company that has traded successfully for many years. It has four shareholder-directors, A, B, C and D. Each holds one ordinary share (there are no other shareholders) and one share in a separate class – Mrs A owns one A share, Mrs B owns one B share, and so on. These separate shares have no capital or voting rights but have dividend rights at the discretion of the directors – in other words, a typical alphabet share structure. The directors receive a monthly salary and agree between themselves the amount of dividend to be paid each year on the special shares, depending on individual performance.
This has worked well for years, but, perhaps inevitably, there has been a falling out. Mr D, who has tended to receive lower dividends than the others, says that he has been unfairly treated over the years and should have been given a greater share of the dividends. His lawyers argue that alphabet shares don’t work as a matter of company law and that there is a duty to treat all shareholders in exactly the same way unless there are specific provisions in the articles saying otherwise. Is that correct? Is this just a purist point, or is there a real problem here?
Query 20,809 – Worried.
What goes round comes round
I’d appreciate readers’ advice on this PPR point. My client lived in a property as his PPR for many years. In 2021, he got married and moved into his wife’s house. They exchanged interests so that both had a 50% share in both properties. The client’s property was rented out to a third party. The couple are now downsizing and both properties are to be sold. The wife’s gain on her share of her original house should qualify for PPR as it was always her own home. But what about the husband’s position – does he get PPR on his share of the matrimonial home and also PPR on the proportion of the gain on his original home – time-apportioned to reflect the period it was rented out?
I feel that it should all be straightforward, but somehow I fear I might have missed something.
Query 20,810 – Cautious.
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