Tax treatment of compensatory payment.
My client is an actor who performs regularly on television. He is not a major star but crops up in a lot of popular dramas. He is the sort of person who people might well say ‘I know that face but I can’t put a name to him’.
He recently discovered that an advertising agency has been using a couple of images of him in an advertising campaign without his permission. After he raised a formal complaint the advertisements have been taken down and an undertaking has been given that the images won’t be used again. A payment was made to him of £20,000 in full and final settlement of any claims that he might have had.
My question is whether or not this should be treated as a receipt of his profession as an actor. Is there an argument that this is more akin to a payment for personal damages which could be treated as free of both income tax and capital gains tax?
Any guidance that readers could give on this would be very much appreciated.
Query 20,571- Gielgud.
Extending a business trip for private holiday.
My client and her husband are both partners in a successful ten-person architects’ practice. They both specialise in designing sports centres and are planning to attend a large international conference on design of sports centres in New York.
The conference lasts for three days but they are intending to stay on in New York for a further seven days for a holiday. The partnership will pay for the accommodation for the three nights of the conference, but the individuals will pay for the accommodation for the other seven nights.
My question concerns the cost of the flights.
- Is the cost deductible in full, on the basis that if the two of them flew straight back after the conference the cost would clearly have been wholly and exclusively for business purposes?
- Or does the fact that they will fly back after their holiday mean that the cost of the flights has to be pro rated between the business and personal days?
- Or, in the extreme, should it be totally disallowed as having a dual purpose?
How would readers treat the costs of the flights?
Query 20,572- Fairytale?
Difficulty of trying to prove a negative.
My client has been subject to an investigation by HMRC and has admitted that he has been making cash sales which have not gone through the books. He accepts that he will have additional tax to pay and has been co-operating with HMRC in an effort to quantify the arrears. However the officer has not accepted his figures and has come up with a computation which is in my, and my client’s, view completely ridiculous.
There is no way that my client could have made the profits HMRC proposes to tax and nothing to suggest that the amount of cash shown in the officers could have been either spent or saved by my client. The officer is not interested and is saying that the burden of proof is on my client to disprove his figures and that if he is unable to, the figures will stand.
My client is saying that this is being asked to prove a negative – that he didn’t have X amount of cash – and that this is impossible. Where do we go from here? Doesn’t HMRC have some responsibility to show that the figures which it has produced have some connection with reality?
Query 20,573- Perplexed.
Is there VAT on late payment interest or is it extra rent?
One of my clients owns a commercial property and there is an option to tax election in place.
Last year, his tenant got into arrears with her rent and my client allowed her to pay half of the rent for six months, with a catch up thereafter. The tenant is now up to date and she has agreed to pay my client £3,000 as a one-off interest charge to reflect the fact that my client’s bank overdraft increased due to her slow payment of the rent.
HMRC is claiming that the £3,000 payment is ‘extra rent’ and subject to VAT because the rental agreement between my client and the tenant is silent about any basis to charge interest if there are rental arrears. In other words, all payments made by the tenant to my client are for rent and nothing else.
Although the VAT is only £500, it seems unfair that HMRC is gaining a tax windfall because of the tenant’s cash flow problems. I should add that the tenant is not registered for VAT because most of her income is exempt so she cannot claim input tax.
Do readers think that the officer is correct?
Query 20,574- Lady Loan.
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