VAT registration required due to Hong Kong payment?
One of my clients trades as a caterer, mainly selling hot dogs, burgers and fries at small scale events. She is not registered for VAT because she limits her activities so that she trades below the annual £90,000 sales threshold.
After each event, she makes a payment to her uncle based in Hong Kong because she uses his special menu for hot dogs and this is effectively a payment for intellectual property. The payment equates to 25% of the hot dog sales she makes at each event.
My concern is that Neil Warren’s recent article in Taxation headed ‘Registration trap’ (25 September 2025) indicates that she should have registered for VAT nine months ago if the payment to her uncle is added to her catering sales under the reverse charge rules. Is this correct? Alternatively, could the payment to her uncle be treated as a donation and therefore excluded from the calculations?
What do readers think?
Query 20,619– Burger Queen.
Is HMRC enquiry into historic undeclared income valid?
A client has approached us with a number of historic enquiries from HMRC. These date back to 2006, where HMRC claims that income that should have been declared was not declared. Tax returns appear to have been submitted for the years 2006 to 2012. For the 2006 to 2008 tax years, HMRC has issued letters within the usual deadlines that say it is making enquiries in accordance with the terms of code of practice 8 (COP8). There is no mention of the TMA 1970, s 9A. Later years use a different template letter, which does refer to TMA 1970, s 9A.
In our view, COP8 is basically a summary of HMRC practice once an enquiry is opened and underway. There is no mention of COP8 in any tax statute.
Our view is that any enquiry allegedly opened with a COP8 letter and no statutory reference is invalid and can be argued as such in tribunal. Would HMRC be able to rely on the Tinkler case ([2021] UKSC 39) if we are right on the COP8 point? What do readers think?
Query 20,620– History Man.
Too good to be true?
A client of mine received some shares in a trading company on the death of his father. His sister runs the company and is the majority shareholder. She has agreed with my client that his shares will be bought back by the company in three separate tranches over three tax years. The buy back does not qualify for capital treatment, mainly because there is not a substantial reduction in his shareholding after each buy back.
The shares are being bought back at a price that is higher than the probate value of the shares. We are taxing that uplift as a distribution in his tax return.
Does my client also get a capital loss on the probate value of the shares bought back by the company? It seems too good to be true to get relief on the income distribution and also a capital loss.
I’d like your experts’ clarification on this matter.
Query 20,621– Capital Idea.
Are you loan-some tonight?
We should be grateful for readers’ views on how the loans made by a company might potentially affect its trading status for inheritance tax business relief purposes.
Our client company undertakes a trading activity and we are quite content that, subject to one matter, its shares would be eligible for business relief.
Apart from undertaking its own trade, our client company has investments in trading companies that undertake the same kind of trade that the company itself does: some of these investments are ‘more than 50%’ shareholdings; and the others are ‘less than 50%’ shareholdings.
The ‘less than 50%’ shareholdings are thus regarded as ‘investments’ in terms of considering the client company’s status for business relief purposes, but when considering the overall value of our client company, the value of its own trading activity and the value of the ‘more than 50%’ shareholdings is such that our client company will pass the ‘wholly or mainly’ test, being more than 50% of its value relating to ‘trading’. The issue, though, is that our client company has also made loans to the trading companies in which it holds shares. These are all trading-related loans: the companies all operate in the same sector as our client company, but all have different areas of expertise and specialism and so they effectively complement and support each other, rather than compete against each other.
The question is, therefore: are the loans made to the trading companies where our client company holds ‘less than 50%’ regarded as a non-trading assets in the same way as the shareholdings themselves? If they are, our client company’s business relief would likely be in jeopardy.
We are aware of the Phillips case ([2000] STC (STD) 112), where a company that did nothing else other than make loans to other family companies was considered to be ‘trading’ for business relief purposes, though we have seen comment that this case might not have been decided correctly. Readers’ thoughts would be appreciated.
Query 20,622– Puzzled.
Queries and replies
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