Do deposits create a problem with cash accounting scheme?
One of my clients uses the cash accounting scheme, so claims input tax when payments are made to suppliers. When my client buys stock for resale, he always pays the UK supplier for 25% of the value at the time the order is placed, ie an advance payment. The balance is paid up to ten weeks later, based on a six-week delivery schedule – at which point the supplier issues a tax invoice – followed by another four weeks credit offered by the supplier.
My client has claimed input tax based on the date he makes the 25% and 75% payments but he never holds a tax invoice at the time when the 25% deposit is paid because the supplier only issues an invoice upon delivery of the goods.
Has my client made a mistake by claiming input tax prematurely? If so, do we need to make any retrospective adjustment? I guess not because we are only talking about timing issues.
Query 20,635– Forward Freddie.
Alphabet shares and rights attached to them
The Companies Act 2006, s 629(1) states that in respect of classes of shares ‘For the purposes of the Companies Acts shares are of one class if the rights attached to them are in all respects uniform.’
Subsection 2 adds that ‘For this purpose the rights attached to shares are not regarded as different from those attached to other shares by reason only that they do not carry the same rights to dividends in the 12 months immediately following their allotment.’
Where alphabet shares are used, it is not uncommon for each class of shares to have the same rights for voting and capital, with the directors given discretion to declare different dividends for each class.
My query is, how should the alphabet shares be described in the company’s articles of association to ensure that dividends declared by the directors are not invalidated or varied by these provisions under company law, with consequent implications for tax treatment?
Would it be sufficient to state in the articles that the rights to dividends for each class of shares are at the discretion of the directors and that those rights do not have any time expiry (noting that subsection 2 refers to a period of 12 months)?
What do readers think?
Query 20,636– MJC.
Too late for reinstatement of VAT number?
An individual bought new commercial property and opted to tax, recovering input tax on the purchase. After a while the rental income fell below the limit, so they deregistered. Unfortunately, their adviser did not tell them about the deemed supply of the opted property on deregistration; they have come to me for advice on how to proceed.
I think it is too late to request reinstatement of the VAT number as the deregistration was more than six months ago, but is there any possibility that HMRC might exercise discretion to allow it?
And if the sole trader accounts for VAT on the deemed supply, and then re-registers for VAT within four years, can they recover the VAT as pre-registration input tax? Does it make any difference if the original cost of the property, or the value at deregistration, was over the capital goods scheme limit?
Readers’ views would be welcome.
Query 20,637– Reggie Stration.
Clarke’s farm
Farmer Clarke has a sizeable farm, which he inherited as a whole on the death of his father some ten years ago. Historically it has been arable in nature, although in recent years the farming activity has reduced and most of the fields have been put to alternative use such as solar panels, adventure park and other diversification activities.
One field is currently used as a campsite with full facilities available, including a shower block, children’s playground and barbecue area. Clarke has unexpectedly received an offer for it from a developer who has seen the opportunity to get planning permission for a housing estate on it. He has made an immediate offer to buy it, which Clarke is likely to accept.
He has been looking to have the benefit of business asset disposal relief for the field and one idea that has been suggested is that he should transfer the business to his wife, who is currently not involved in it, retaining the field for sale immediately after the transfer.
Do readers think this simple strategy would work, or is there a better way forward?
Query 20,638– Clarke’s Clerk.
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