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After the event
Submitting a tax return after HMRC’s tax assessment.
A client has been in business as a sole trader since June 2015, with an annual income of some £165,000.
Having been employed before the start of her business, she has never filed or been asked to file tax returns. Nor did she have the opportunity to register with HMRC for self-assessment before she was served with discovery assessments under TMA 1970, s 29, which showed substantial liabilities in respect of both 2015-16 and 2016-17.
We find this approach somewhat unusual since HMRC chose not to issue TMA 1970, s 8 notices to deliver returns for years that are well within time. These could have been followed by determinations issued under s 28C, had HMRC considered these necessary.
Given that our client believes the assessments to be excessive, we are considering the submission of self-assessment returns for the two years covered by the assessments.
We are aware that the returns will not ‘automatically’ vacate the assessments (unlike a return filed within time following a s 28C determination) and thus seek to ensure that the client is not subject eventually to double assessment on the very same profits – in other words, the current assessments and the self-assessments.
The legislation in TMA 1970, s 32 provides: ‘If … it appears … that a person has been assessed to tax more than once for the same cause and for the same chargeable period, they shall direct the whole, or such part of any assessment as appears to be an overcharge, to be vacated…’.
Could readers share their views on the applicability of s 32 in the above circumstances and whether HMRC has grounds to rely on the assessments in spite of the submitted returns.
Query 19,311– Assessman.
Long retired
Treatment of outstanding loan from a Guernsey trust.
We have been asked to advise in the case of a Guernsey retirement plan, which is a trust with a UK resident beneficiary.
The plan was set up in 1982 as a ‘normal’ UK pension scheme by the limited company owned by the beneficiary. That company was taken over in 1997. In 1992, the plan adopted model rules for small self-administered pension schemes and in 1997 Guernsey trustees were appointed.
In 2003, tax was paid under TA 1988, s 591. For some reason it was paid on a negotiated basis that was somewhat less than the sum actually charged under the assessment.
In 2008, the principal and only beneficiary (long retired) took out a sizeable loan from the trust. It carries interest that has been accruing and has not been paid. Further, there was also a smaller loan to the principal beneficiary’s son on which interest has been paid. This smaller loan is about to be repaid. However, the loan to the principal beneficiary cannot be repaid until he and his wife die, when the disposal of the marital home will release funds. The wife is not a beneficiary.
I have the following questions.
First, do the disguised remuneration provisions relate to the loan to the principal beneficiary, and if so how?
Second, is the outstanding loan a valid deduction in the principal beneficiary’s inheritance tax affairs and those of his wife when they die?
Third, is there any form of ongoing tax liability arising from the interest charged by the plan that remains unpaid?
Finally, if he nominates his children who are all UK tax resident, are there any tax consequences of giving them money when he dies?
I look forward with interest to replies from Taxation readers.
Query 19,312– Offshore.
Balancing act
Capital allowances allocation and apportionment rules.
I have a follow-up question to ‘Hanging in the balance’ (query 19,271) and the replies that appeared in Taxation, 29 November 2018. The query related to capital allowances on incorporation.
The query related to the assets of a sole trader being transferred to a limited company. The assets had a capital allowances pool balance of £20,000, but were worth £30,000. There was a suggestion that the assets might be sold for £1 to create a balancing allowance.
Let’s say that an unincorporated business had assets including freehold premises and was sold for £300,000. If only £1 was allocated to the capital allowances assets to obtain a balancing allowance, would the apportionment rules in CAA 2001, s 562 apply automatically in this scenario?
I look forward to hearing from Taxation readers.
Query 19,313– Mrs H.
Election day
VAT ‘option to tax’ dilemma on property development.
My client owns a commercial building which had an option to tax election in place for 21 years until it was revoked by my client in May 2018 under the 20-year rule. This is because the tenant is unable to fully claim input tax on his expenses, so rent since May has been treated as VAT exempt.
However, my client engaged a land professional in the summer and has paid him a substantial sum to secure planning permission on the property so that it can be sold and converted into apartments. The costs incurred to date are £100,000 plus VAT and my client has incorrectly claimed input tax on his August and November 2018 returns.
On the basis that the building will eventually be sold to a developer who can claim input tax, should my client make a new option to tax election with a current date so that VAT can be added to the property sale, therefore meaning the £20,000 input tax claim on the professional fees becomes correct?
What do readers think?
Query 19,314– Freehold Fiona.
