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Retiring corporate partner
BADR eligibility on apparent change in trading status.
My client and his wife are directors of a limited company who own shares 60%/40%. The company is a member of a general trading partnership that operates a trade for business asset disposal relief (BADR) purposes but there is uncertainty around the eligibility for BADR for my client.
On 31 March 2020, it was agreed that the company would leave the partnership and my client and his wife would be entitled to a fixed profit-share and no rights to the partnership capital (having previously been entitled to 15% of profits and capital).
The company is continuing for two years on the current arrangement of a fixed profit-share until 31 March 2022. My client would then seek to liquidate the company and claim BADR relief.
Following the introduction of TCGA 1992, Sch 7ZA by the Finance Act 2016, the provisions in Part 3 determine whether my client qualifies for BADR. Prior to 31 March 2020, the trading activities of the general partnership would be attributed to my client and his wife for BADR purposes. However, after this, the trading activities are no longer attributed because the profits and assets test is no longer satisfied (TCGA 1992, Sch 7ZA, pt 3, paras 15-20).
My client and his wife should still qualify if the company is liquidated prior to 31 March 2023 as they would meet condition B in TCGA 1992, s 169I (disposal of shares within three years of a company ceasing its trade). The confusion arises because the company did not cease trading on 31 March 2020 where it effectively turned from a trading company to an investment company on 1 April 2020.
If the company is liquidated prior to 31 March 2023, do readers think that my client and his wife qualify for BADR?
Query 19,783 – Miffed.
Residence nil rate band
Eligibility of downsizing relief on estate.
My client has transferred ownership of his home, where he continues to reside, outright to his adult daughter and pays a market rent to her to avoid the gift with reservation of benefit rules.
He is now looking at putting his affairs in order and has £900,000 in other assets which he also intends to leave to his daughter when he dies.
My client is a widower and has the benefit of the transferrable nil rate band from his deceased wife. But will his estate benefit from downsizing relief?
I look forward to hearing from readers with experience in this matter.
Query 19,784 – Housewarmer.
Company VAT registration
Non UK-based company registering to VAT.
Our client is SerCo, a limited company registered in the UK. The company is run by Gunter, its sole director and shareholder from his residence in the Netherlands and it provides consultancy services to business customers which are at present all EU-based, although the company expects that UK clients would approach it for services in the future.
SerCo is registered at a virtual address in the UK, where post received is scanned and emailed over and where the company register is held by the office provider, and it also uses the services of our UK firm for preparing and filing the company’s annual accounts and tax returns.
SerCo incurs VAT on services provided to it by some EU suppliers. There is also the accountancy services provided by our firm to consider. The company is able to lease a London office which is available for its use, although in practice it is unlikely to be used at any point.
With no UK presence, can an application to register to UK VAT be made by SerCo and if so, what would be the implications for the company’s customers?
I look forward to replies from readers.
Query 19,785 – Gunter.
Mixed supply?
Cheese presentation box: single or mixed supply?
I act for a VAT registered client who has imported some gift boxes from China. He will put ten samples of good quality cheese inside each box and sell the completed item to both retailers and also directly to UK customers through his website. The final selling price will be £23 per package. The presentation box will include the company’s name and logo on it in gold-coloured lettering, with the heading of ‘fine cheese selection’.
My concern relates to VAT. My client’s view is that the sales will all be zero-rated because if there was no cheese in the box, the customers wouldn’t buy the product – and cheese is zero-rated as food. He has compared it to someone buying a ticket to go inside a football stadium when there is no game taking place. But I am not so sure – the boxes each cost £2.99 from the Chinese supplier and, in my opinion, look more enticing than the cheese. Is this perhaps a mixed supply for VAT purposes?
The bulk of the sales will be in the autumn, leading up to Christmas, so we need to get this right.
Readers’ thoughts would be appreciated.
Query 19,786 – Cheddar Charlie.
