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Tax Tips & News

July Questions and Answer

Newsletter issue - July 2022

Q. My business recently hit the VAT registration threshold and I duly completed the necessary forms. That was six weeks ago and HMRC have not sent the VAT number. Now a customer is refusing to pay the VAT element of their invoice. What shall I do?

A: Until you receive the number you cannot issue a valid VAT invoice but that is not to say that you cannot issue invoices. It is permissible to issue invoices that include the amount of VAT, but VAT should not be shown separately. For example, if you are raising an invoice for £1,000 plus VAT the invoice should show £1,200 and then when payment is received the £200 will be available to pay HMRC. You should also ensure that a statement is shown on the invoice confirming that the VAT number has been applied for (e.g. 'VAT number applied for - a VAT invoice will be issued once received. '). When you do receive the number, send a replacement invoice with the correct details to the customer.

However, in your case it would appear that you have issued an invoice which showed the VAT element separately. You can therefore do one of the following:

  1. Ask the customer to pay the net amount as a payment on account and then the remainder being the VAT element at a later date when you are able to issue a valid invoice or
  2. Cancel the invoice with a credit note issuing an invoice for the net amount only with no mention of VAT. Once the VAT number is received, issue a VAT only invoice.

You should liaise with the customer confirming what you intend to do.

Q. I am a landlord using my home as the base for my property business. When I drive to a rental property for an inspection I sometimes stop off on the way to a DIY store, for example, to collect materials for repairing of the property. Then on the way back after the inspection I may visit a supermarket for some personal shopping. Can I claim the whole trip as business against my rental income?

A: The first stage of the trip, from base to the DIY store and then on to the rental property itself, is fully allowable, but the journey back from property to base cannot be claimed, as it was not undertaken 'wholly and exclusively' for business reasons.

However, a deduction can be claimed for a journey where any personal benefit is incidental, e.g. a trip made to the rental property, but the landlord stops on the way to pick up a newspaper.

Q. My wife and I are director/shareholders on our own company. I own 65% of the ordinary share capital and my wife owns 35%. I also personally own the property from which the business is being run. I am getting to retirement age and now wish to sell the property and the business will continue but being run from rented premises. At the same time, I want to give between 5% and 10% of my shares to my adult son who will take over from me in running the business. What will be my tax position? Can I claim Business Asset Disposal relief on the sale of the property?

A: Business Asset Disposal Relief can be claimed on the disposal of the shares but also on the associated disposal of any assets used in or by the company. This can include the business premises used by the business but personally owned by a director, as in this case.

The main condition that needs to be satisfied is that for at least two years ending on the date of disposal the shareholder must be beneficially entitled to:

  1. at least 5% of both the company's profits available for distribution to 'equity holders' and the company's assets available for distribution on a winding up and/or
  2. at least 5% of the proceeds of sale in the event of a disposal of the whole of the company's ordinary share capital.

In your case in order to meet the 5% test, you would have to make a minimum disposal of 7.7% of your holding (65% x 7.7% = 5%). A disposal of 5% of your holding would mean disposal of only a 3.25% stake (65% x 5%) and, as such, the 5% test would not be satisfied and Business Asset Disposal Relief cannot be claimed on either the sale of the shares or of the property.

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