Purchase of garages: is it inevitably a TOGC?
One of my clients is buying six lock-up garages for £100,000. The current owner has opted to tax the site but says that VAT will not be charged on the sale because the transfer of a business as a going concern (TOGC) rules can apply. This is because five of the six garages are tenanted with vehicle owners, and my client intends to continue with that activity and those tenants. Is this correct? My thinking is that VAT should perhaps be charged on 1/6 of the proceeds to reflect the fact that one of the six garages is unoccupied.
For a TOGC to apply, my client will also need to opt to tax the land with HMRC, but my thinking is that it might be in his best interest not to opt to tax and, instead, accept the 20% VAT charge by the seller and claim input tax of £20,000 on his next return; he is already VAT registered because of other business activities. This means that if he sells the garages in the future – either individually or as a package – then he will not charge VAT because the sales will be exempt from VAT under VATA 1994, Sch 9 Group 1, ie as land supplies. This would be useful if the buyer(s) cannot claim input tax. Is there logic to my thinking?
Query 20,603– Gabby Garage.
Director/shareholder withdrawals and VAT issues
I have a potential client, two individuals who set up a limited company in April 2024. Both are directors and equal shareholders. Since trading began, they have been withdrawing funds from the company for personal use, but no PAYE scheme has been operated.
The company has not generated sufficient profits to support these payments as dividends, with the bank balance largely run down without provision for VAT or corporation tax. On review, it also appears that the business may have exceeded the VAT registration threshold a few months after trading commenced but has not registered.
The directors have now come to me for a financial clean-up. My question is how best to regularise the position: should payroll be backdated to April 2024, or is there another way of treating these withdrawals? And how should the potential late VAT registration be approached alongside this?
Any guidance on the most practical and compliant route forward would be appreciated.
Query 20,604– Concerned Adviser.
Land ownership dilemma
My client lives in a large house in a country village. There is a field between her house and her nearest neighbour’s house. The two houses were built by the same developer and she and her neighbour purchased them at roughly the same time.
When she moved into the house 15 years ago she understood that the field was part of her neighbour’s property: he had always used it for his own purposes. However a couple of years ago it was discovered that the field in fact belonged to my client and not to the neighbour. There had been a conveyancing mistake when the properties were first purchased which nobody appreciated at the time. As the neighbour had been using the field for more than ten years he sought, and obtained, an order for adverse possession. As I understand it, this means that the property is treated for all purposes as belonging to the neighbour.
My client has asked me whether there are any tax consequences. I’ve never seen this situation before and am struggling to understand what advice to give.
Has she made a capital gains tax disposal? And what about the costs she incurred in challenging (unsuccessfully) the neighbour’s claim for adverse possession? If she is treated as never having owned the land and therefore has not made a disposal what basis is there for her being able to obtain tax relief on the costs?
Any help readers can give will be much appreciated.
Query 20,605– Partridge.
Making tax digital work around
With making tax digital (MTD) almost certain to go ahead next year I am starting to prepare clients for the new requirements. As you can imagine, many of them see no benefit from the project and are reluctant to pay the (very reasonable) fees I have proposed for preparing the quarterly updates.
A couple of clients have been looking at various forums and have suggested that many people are forming 99/1 partnerships with a spouse or incorporating their business in order to fall outside MTD.
I’d be interested to know from readers whether people are actually doing this, or if it is just idle chatter. It seems to me that the additional complexity and cost of forming and operating a partnership or company will outweigh the costs of remaining as a sole trader and biting the MTD bullet. Isn’t this a case of jumping out of the frying pan into the fire?
Query 20,606– Cynic.
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