Setting up multiple companies to separate business interests can seem very straight forward. There are however important considerations. We explore the implications of owning too many companies.
December 2023 Newsletter
14 December 2023
Reducing Tax
HMRC invite taxpayers to disclosure any undeclared crypto assets
HMRC have announced a drive to invite taxpayers to voluntarily disclose any income tax or capital gains from Crypto assets that have not been previously disclosed to HMRC.
The most popular form of crypto asset is Bitcoin, however there are other forms such as NFTs and utility tokens.
For most individuals, capital gains tax is likely to be applicable, however for those actively mining crypto, this may be classed as trading income.
Taxpayers have two options for disclosing this:
- The Digital Disclosure Service (DDS) – for those who have been careless in their tax affairs.
- The Contractual Disclosure Facility (CDF) – for those who want to admit to tax fraud and avoid criminal charges.
Tax Treatment
The tax treatment of crypto purchases and sales can be complex – the anti-avoidance ‘bed and breakfasting’ rules mean that sales and purchases within 30 days are matched against each other.
This prevents taxpayers from creating an artificial gain to make use of tax-free allowances and benefit from a tax-free uplift to the base cost of their assets.
The Digital Disclosure Service works much like HMRC’s Let Property Campaign for landlords; it offers reduced penalties for full disclosure to HMRC.
How Long Can It Take?
Disclosures made using the DDS can be for four to six years and the number of years disclosed depends on your behaviour.
Taxpayers are expected to settle their outstanding liabilities within 30 days, however, a time-to-pay agreement can likely be reached.
If you currently hold any crypto assets that haven’t previously been disclosed to HMRC, then please get in touch.
We can assess whether there are any undisclosed income or gains and advise on the best way forward.
Tribunal Case: Fuel and hired plant were separate supplies for VAT
In Gap Group Limited v HMRC 2023, the First Tier Tribunal (FTT) found that the supply of diesel in respect of hired plant was, for VAT purposes, separate from the supply of plant hire.
Gap Group Limited (GAP), a plant hire company, provided items of equipment on hire, with full tanks of fuel on delivery.
If the equipment was returned with less than a full tank, Gap charged their customers for the fuel and applied the reduced rate of VAT for red diesel of 5%.
What Did HMRC Do?
HMRC contended that there was a single composite supply and that the supply of fuel formed part of the main supply of plant hire.
This would mean that the VAT rate of 20% would apply to the fuel element too.
HMRC raised an assessment, but GAP appealed to the First Tier Tribunal.
FTT Factors They Considered.
The FTT found there were in fact multiple supplies for VAT purposes, and upheld the 5% VAT treatment for the fuel element.
The FTT considered the following factors:
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- Gap could not have known whether it would make a supply of fuel or not at the point that the hired plant was delivered to the customer.
- The customers were aware they could opt for Gap to refuel it when it was returned at the end of the hire period; they knew this was an optional extra and not included in the hire charge.
- Customers had genuine contractual freedom to make the choice to either refill it themselves or purchase the fuel from Gap on return of the plant.
An important case to consider for all our clients who provide equipment for hire!
Home Renovation or Trade?
The successive purchase, renovation, and sale of three properties in five years would cause debate over whether a trade was in action.
HMRC certainly believed this in the recent case of Gary Ives v HMRC 2023, however the First Tier Tribunal disagreed with them.
The Case
Mr Ives bought and sold the following properties:
- Ringmer: Bought in 2008 as two flats (£760,000) and sold in 2010 (£1.775m) as one dwelling.
- Wandsworth: Bought in 2010 (£750,000) and sold in 2012 (£1.5m).
- Crondace: Bought in 2012 (£1.731m) and sold later in 2013 (£3.25m).
The Action
Each property was renovated by Mr Ives to be a family home, and as such Mr Ives did not pay tax on any of these sales, assuming Principal Private Residence Relief (PPR) applied to the gains made.
Mr Ives lived in all of the properties whilst he renovated them, and Mrs Ives joined him once they were inhabitable. Each property was acquired in turn to be closer to family.
HMRC Contention
HMRC contended that PPR relief did not apply, and that Mr Ives was carrying on a trade on the basis that:
- During the renovation of Ringmer and Wandsworth, Fullbrooks was Mr Ives’s main residence. Mrs Ives had never really moved into either property.
- Council Tax discounts were claimed for all three properties on the basis of them being uninhabitable or unoccupied.
- Any residency was temporary.
The Appeal
Mr Ives appealed to the First Tier Tribunal, who voted in his favour and found that:
- Friends and family provided witness statements that supported Mr Ives’s account of why the properties were bought and sold and the short term nature of their ownership.
- The FTT considered ‘the Badges of Trade’
Repetition
These were three similar sales in quick succession; however, Mr Ives’ account provides personal, non-trading reasons.
Improvement to the asset
All three assets were significantly changed prior to sale.
Existing trade
Mr Ives was in the building trade; however he was more of a handyman, and didn’t delve into large project construction.
Finance
two of the properties required large finance but none of the debt was structured in a way to facilitate quick sales.
Motive
On the evidence provided, it appears that all three homes were enjoyed as family homes, even if for very short periods of time.
Isolation
When considered in isolation, some of the Badges do indeed point towards the existence of a trade, however when taken together, the FTT concluded the balance tipped towards these purchases being honest family homes.
Latest HMRC one-to-many letters issued
In light of HMRC’s recent ‘Spotlight 63’ deeming hybrid structures used by some landlords as being tax avoidance, HMRC have published their latest one-to-many letter campaign.
These letters have been issued targeting taxpayers who have made use of Limited Liability Partnerships with corporate members to avoid tax on their rental portfolios and invite them to withdraw from the schemes and make a full disclosure.
Incorporation Relief
On the same theme, HMRC will also be issuing letters to certain taxpayers who incorporated their property business in 2017-18 and applied Incorporation Relief on the transfer, mitigating their capital gains tax liability.
Later tax years will likely follow.
Again HMRC invite these individuals to disclose any errors.
Get In Touch!
If you’ve received either letter, or even if you haven’t and the above situations apply to you, then please get in touch.
We can assist in assessing whether there has been any underpayment of tax and liaise with HMRC to bring your affairs up to date.
Applying the incorrect CIS status can be costly…
For those engaging subcontractors to carry out any construction works, it is always the payer’s responsibility to assess and correctly apply the CIS rules, not the payee – this means the burden of the potential penalties for failing to comply falls on the contractor.
The importance of making sure you’re correctly assessing and paying your subcontractors was highlighted in the recent case of Access Contracting Services Ltd (ACS) v HMRC 2023.
To summarise, ACS provided the labour of tradespeople.
CIS Deductions
Although previously verifying the status of their new subcontractors as 20% CIS deductions, ACS continued to make payments gross and submitted CIS statements reflecting these gross payments.
HMRC discovered the error and sought to recover £447,000 of under-declared CIS from ACS, as well as £7,000 in penalties.
Under Regulation 9, HMRC can seek to recover this tax directly from the subcontractors, but only where the error arose in good faith and with a genuine belief that the payment was not within the scope of CIS.
Reasonable care to comply must have been taken.
ACS appealed under this basis.
The Result
However, the FTT found that reasonable care was indeed not taken, and relief of the liability under Regulation 9 was not appropriate.
There were no internal checks or controls for CIS compliance and no records were kept to evidence CIS status checks had been performed.
The appeal was therefore dismissed.
Failure to comply with the CIS Regime can result in some hefty penalties.
If in Doubt
In some situations, as happened with ACS, HMRC can seek to recover the underdeclared CIS payments from you as the payer, even if you’ve already paid your subcontractor gross.
If you’re in the construction industry and are concerned about your compliance with the CIS rules, please get in touch with your account manager to discuss how we can assist you.
The content in this blog is correct as at 14th December 2023. See terms and conditions.
