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New queries: 9 July 2020

07 July 2020
Issue: 4751 / Categories: Forum & Feedback

Corona support

Which accounting period for a business support grant?

My client qualified for the small business support grant of £10,000, which she was delighted to receive on 2 April. Her business accounting year end is 5 April.

I have heard a suggestion that, as an unconditional grant with no possibility of repayment, it should be included as income in 2019-20, in which case it will be taxed at 40% (plus 2% National Insurance contributions). In my view, it is intended to support the business during the lockdown period, so it should go in 2020-21, when it may well contribute to a much reduced profit.

I appreciate that if my client ends up with a loss in 2020-21 it will not matter because it will be possible to carry it back against the previous year. However, if the rest of the results are (say) £60,000 and break-even, putting the grant in the first period produces an unfavourable result. Is that result compulsory?

I look forward to thoughts from Taxation readers.

Query 19,591 – Concept.

Two houses

SDLT on main residence and investment property.

We are acting for a husband and wife who are purchasing both a new main residence and an investment property in England.

Their previous main residence was sold at the end of 2019 and they moved temporarily to rented accommodation. Had things proceeded as planned, they would have completed on the main residence purchase first paying ‘ordinary’ (so without a 3% surcharge) stamp duty land tax rates and would have later completed on the investment property on which they would have paid the 3% surcharge.

Due to the Covid-19 situation, and there being a chain, completion on the purchase of the main residence has been delayed, but the investment purchase is proceeding and will now complete first. In these circumstances, it seems that ‘ordinary’ stamp duty land tax rates will apply to this purchase and will then, again, apply on the purchase of the main residence.

This does not seem quite right, but then I recall a colleague who had a rental property before purchasing his first main residence who had to pay the 3% surcharge, so I know that the rules are not completely logical.

I would welcome readers’ comments on this analysis.

Query 19,592 – Adviser.

Determining disposable income

Can capital gains be used in calculating disposable income?

I act on behalf of a client whose estate will be liable to inheritance tax; consequently, we are looking at how this might be minimised.

The client has more than enough income for their personal requirements and it seems that making gifts out of disposable income would be possible. My question concerns the determination of a taxpayer’s disposable income.

Page 8 of HMRC’s form IHT403 ( is helpful in establishing disposable income and then maintaining a record of this across several years.

One subheading on page 8 in the types of income section is ‘investments’, but no further detail is provided. Clearly, this is expected to include investment income such as dividends, but no mention is made of capital gains.

Given that the thrust of the legislation is to tax any diminution of the estate, I wonder whether capital gains should be included as income for these purposes. For example, some investment trusts may yield a return in the form of gains as well as income.

If the answer is positive, which logic supports, should those gains be included on an ‘as realised basis’ or, as I think would be more correct, by marking the value of those investments to market each year. In this way the taxpayer’s income would reflect not only gains but also losses whether they are realised or not.

I should be grateful for the views of Taxation readers on this point.

Query 19,593 – Befuddled.

Deregistration dilemma

VAT deregistration because of a temporary stop on trading.

I read with interest Neil Warren’s recent VAT article ‘Cash is king’ (Taxation, 14 May 2020, page 16), and wonder whether I incorrectly deregistered a client last year.

The client operates a seaside guest house with a bar and used to have annual income of £100,000 so was registered for VAT. He then decided to close for four months in the winter each year and live in Spain, so his expected annual turnover fell to £75,000 and we deregistered the business.

However, Neil mentioned that deregistration cannot be requested if it has been caused by suspending trading for 30 days or more. Four months is obviously more than 30 days so is this a problem that HMRC might pick up?

As a separate question, the client is now concerned that the ‘staycation’ outcome of the coronavirus crisis could lead to an unexpected boost to his turnover. This increase could take him back over the £85,000 VAT registration threshold again.

We have suggested that he could form a separate legal entity for the bar activity – in other words, a business split – to avoid a VAT problem.

What do Taxation readers think of this idea?

Query 19,594 – Basil.

Issue: 4751 / Categories: Forum & Feedback
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