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Rumours
Tax planning ideas for a singer and songwriter.
One of my clients has asked for some advice for his daughter. She has a dog-walking business and declares this income on her self-assessment tax return. In her spare time, she is a singer and musician and in 2018-19 she started to earn some money from this. Some of this is from gigs in local pubs and events and some is as a busker. I can see that she should declare the income where she is being paid formally, but what about the money from busking; is this just a gift? Further, this of course gives rise to a related question: must the full amount be taken into account when considering whether her turnover has exceeded the VAT threshold?
On a slightly more complicated matter, it seems that some of her songs are receiving a lot of attention on the internet and her father tells me there are rumours that some well-known artists would like to record them. Before this takes off, should she transfer her song-writing activity to a limited company – I presume that would then own the copyright of the songs. I suppose I am thinking that this might reduce her immediate tax liability and perhaps allow income to be drawn into the future. Are there any other planning opportunities or pitfalls I am overlooking?
I look forward to readers’ replies.
Query 19,375– Songstress.
Arctic circle
Current thinking on ‘Arctic Systems’ arrangements.
I have a client who is about to take on a consultancy project with a success fee that might run into millions of pounds, receivable (if at all) over the next two years. If he sets up a company to receive it, the 38.1% dividend rate negates any benefit of lower corporation tax rates, and the 32.5% rate only provides a marginal saving. But if he could give half the company to his wife, they could each withdraw a substantial dividend each year as a kind of pension and benefit from her basic rate band. Is that considered possible?
I recall when Garnett v Jones was going through the courts there were arguments about whether it was better for the husband to subscribe for all the shares and make an outright gift of half of them, or for the wife to subscribe for her shares with her own funds. Does it make a difference, or do readers think that HMRC would attack such an arrangement anyway? To be clear, the wife will have no role in the company other than as a shareholder.
I do not consider employment status to be an issue, but I look forward to hearing from readers on the points above.
Query 19,376– Nobble.
Say cheese
When does a hobby become a business?
My client, who is a highly-paid financial consultant, is also a keen amateur photographer. Over the years he has spent thousands of pounds on photographic equipment, purely for his own pleasure. Recently, he exhibited some of his photographs in a local exhibition and this has led to a few people buying digital prints from him. Also, he is occasionally asked by friends to take portraits of them. Sometimes he does this for free, but at other times he will be given a small amount of money. We are only talking about a few hundred pounds a year and there is no likelihood of this increasing significantly.
If we take into account the cost of regular equipment upgrades (some lenses cost an eyewatering amount of money) and other expenses, his outlay far exceeds the modest amounts he receives for his work. He has recently approached me about how this activity should be reflected in his tax return.
Obviously, the client would be pleased if he could obtain relief for the ‘losses’ against his other income. I think that this is unlikely, given that this is really still a hobby, albeit one that does produce a small amount of income. He is not, in my view, carrying on a trade and certainly not one with a view to profit. Can I file a return on his behalf showing a trading loss? If not, what do I do? I could ignore the whole activity, but on the other hand he has received income from it and I feel uncomfortable with him simply not reflecting this somehow on his tax return.
This must be a reasonably common situation, with what is essentially a hobby creating some income. What would Taxation readers advise.
Query 19,377– Nadar.
VAT
Output tax challenge for dancing school.
I act for a partnership which is VAT registered and provides group dancing lessons to children as one of its activities. The client has just had a VAT visit from HMRC and the officer identified that my client has dealt with income from dancing sessions, given by both my client and an employee, incorrectly. The client treated these as wholly exempt from VAT, rather than partly standard rated because the exemption applies only to lessons given solely by the partner under the private tuition rules.
My concern is that the HMRC officer has treated 50% of the income from these joint lessons as being subject to VAT. They are then seeking to assess tax going back four years but, as my client pointed out, most of the input in these lessons is from herself with the employee playing a minor role.
My client thinks that 80% of the fees should be exempt. The officer has said that 50% is a generous offer because he has the power to treat all income from joint lessons as standard rated.
What do readers think of this situation? Do we have a valid argument or are we dancing on thin ice?
Query 19,378– Nureyev.
