UK Tax Questions Answered by Shrewsbury Accountant
It has been a few months since my last tranche of UK Tax Questions Answered →, so I thought it about time to share with you some of the more interesting questions I’ve had in recent months.
Each question is from a Tax Blog reader which I hope will be helpful to you or at least you’ll find the answers interesting. The Topics today:
- Is it okay to pay in cash?
- Can shareholders in a private Ltd company waive their dividends?
- Is wrestling acting?
- Capital Gains Tax on second property
- Is splitting my business to avoid VAT allowable?
1. Is it okay to pay in cash?
I now live in Shropshire, but previously when I lived in London, wherever I went for a haircut I was told I can only pay in cash. So I asked my new barber if they have a card machine and got the reply ‘we only take cash: and by the way, there is a cash machine over the road that you can use.’
Then last night, I went out with a couple of friends to a restaurant and to my amazement they also had no card machines and we once again, could only pay in cash. Surely when most businesses must and do declare everything to the taxman, what the bar and café owners are doing is illegal!
Answer
I’m not sure if you’re asking a question or giving me an opinion, but it’s clear from your message than you are assuming tax fraud on the part of these business owners. First of all, let me make it perfectly clear that cash does not mean fraud.
There is a cost attached to taking cards that many small businesses are reluctant to incur. If you are uncomfortable dealing in cash just take your business elsewhere. My own barber does take cards, but annoyingly, my nearest cafe has gone cashless; which I consider worse than taking cash only.
2. Can shareholders in a private limited company waiver their dividends?
Our company has a share split of 60:40 between a 60% shareholder, who wants to take fewer adhoc dividends as they are employed elsewhere and a number of minor shareholders including me. The 60% shareholder has a higher interest in the company because it’s their name and contacts which are bringing in all the work, but the rest of us minority shareholders would like to take the dividends.
The majority shareholder is happy for us to take them, but is this allowable?
Answer
Unfortunately for you and the other minority shareholders, the answer is no. Under current legislation, once a dividend is declared it must be paid as per the share register. That being said, the 60% shareholder could leave the money in the company to assist cashflow and take it out later; but the date that the dividend is declared and the tax year in which it falls, is the critical date for tax purposes.
3. Is wrestling acting?
I am a professional wrestling referee and a colleague has told me that my fees should be zero rated as the contest is in effect an acting performance, with a predetermined result, so cannot be considered a sporting event. Is he right?
Answer
Refereeing is standard rated; it can only be exempt if provided by an eligible body and it appears that you are providing your services freelance and not as an eligible body, so if you’re above the £85,000 VAT registration threshold you should charging VAT, same as any freelance referee (or actor).
Is it okay to pay in cash?
4. Capital Gains Tax on second property
Our family own a second property, which my wife inherited from her mum and she receives the rent. She has put both me and our son on the deeds, so we all own a third each. Our son is now buying a flat and does not want to pay additional stamp duty. So he is being removed from the second property deeds. My question is, as the property has increased in value from £285000 to £380,000, will our son have capital gains tax to pay?
Answer
Leaving aside the questionable decision for only one of the co-owners to declare the rent received, the mere recording of your son as a co-owner does not tell us what he owns beneficially. I suspect that he didn’t contribute to the acquisition costs and it is therefore arguable that removing his name from the deeds, which I presume are recorded at the Land Registry, is a none-event for tax purposes.
5. Is splitting my business to avoid VAT allowable?
I have my own limited company that in the main builds one-off new houses for private customers and is therefore VAT registered. However, I am increasingly being approached by private customers for building repair services and small extensions, but they don’t want to pay the VAT. My answer to this problem is to form a new company just for this work and operate under the VAT threshold. Do you foresee any problems with this plan?
Answer
Oh yes I most definitely do. Assuming you do go ahead, as both companies will be providing building services and there’s no clear commercial reason for the split other than to avoid having to charge VAT to some customers, you will have a major problem if your businesses are looked at by a VAT Inspector. The Vatman is likely to consider the arrangement an artificial separation for the sole purpose of avoiding VAT and it could prove very expensive.
If you would like more detailed information on some aspect of UK Tax, send me an e-mail and I’ll be pleased to advise further.
David Jones is the Senior Partner and Founder of Morgan Jones & Company. Born in Liverpool and an Accountancy graduate of the University of Wolverhampton, David spent twenty years working for the Customs & Excise in London then Shrewsbury before starting his own business. David's depth of knowledge of the UK tax system and his ability to communicate this learning has seen Morgan Jones & Company grow into Shropshire's most respected Accountancy Practice.