UK Tax Questions Answered by Shrewsbury Accountant No. 31

UK Tax Questions Answered

It has been several weeks since last shared with you tax related questions from my in-box, so today I’ve selected a number of the questions received that I hope you will find interesting. The Topics today:

1. It’s all Greek to me!
2. Can I claim for a tax deduction for skydiving payment?
3. How can HMRC disallow my VAT claim?
4. Can I use my ltd company to purchase land and build a house to live in?
5. Keyboard player’s medical costs

It’s all Greek to me!

I am Greek and 2 years ago I moved to UK for some months, set up an online business, obtained a national insurance number, a UTR and registered for VAT. A few months later I moved back to Greece but continued selling items to UK customers through an ecommerce portal (eBay). That means all my turnover and profit is from UK. I am paying my personal tax allowance plus VAT and everything needed in the UK normally. How can I keep living in Greece and be legally fine here too while paying my taxes and VAT on UK normally?

Answer

Whilst you may be registered for VAT, you are most definitely not a Sole Trader in the UK for UK Income Tax or National Insurance. On the facts given you don’t have a UK business you have a Greek business selling to the UK. You have no tax to pay in the UK nor any filing obligations. You do however have tax and filing obligations in Greece so you should speak to a Greek accountant immediately.

Can I claim for a tax deduction for skydiving payment?

I’m the MD of a small limited company and I recently paid a sky diving company for 10 tandem skydives as part of a charity fundraiser. All of the participants were company employees, including my wife and I but two were subcontractors. Am I correct that the £159 per person cost is allowable as an expense as all of the participants raised money for charity and by paying for it, I assume that the £1,590 total cost counts as a charitable donation, am I correct?

Answer

Donations to a charity are tax deductible (see https://www.gov.uk/tax-limited-company-gives-to-charity for more information). Unfortunately, this is not what you appear to have done, if you’d given the money to the charity and they had paid the sky diving costs, you would have been fine. However as you paid the costs, even though the intention was charitable, the cost relating to the employees, including you and your wife, is allowable on the basis that its staff entertaining, but all staff will have a P11D benefit of £159 and may therefore have a small tax liability and regrettably the payment element relating to subcontractors is not allowable.

How can HMRC disallow my VAT claim?

My wife and I inherited a farm but we’re not farmers, so I had the idea of using the land to grow grass for haymaking, building a barn and installing equipment to store hay and then selling it. We registered with HMRC for both Income Tax and VAT

Now 3 and a half years later, HMRC/VAT have told us that we must repay the £20,542 VAT reclaimed on the barn and equipment as we’ve only made sales of £500 during that period. I think that they are being grossly unfair, so my question is, can they legitimately demand the VAT back?

Answer

Having read the HMRC letter that accompanied your email, HMRC have disallowed all input tax on the basis that there was no proper business in place and your activities were “not conducted on sound and recognisable business principles.” Unfortunately for you they are legally correct as they are relying on the ‘Fisher Test’, which comes from a landmark High Court case a few years ago. The test that you’ve failed is the key fact was that no rational business owner would spend £100,000+ in return for an annual income of less than £500. This is a 200-year payback period and clearly failed the third Fisher test which states: does the business have a certain measure of substance in terms of the quarterly or annual value of taxable sales made?

Can I use my ltd company to purchase land and build a house to live in?

I’m the sole director of a small limited company and want to know if I can use my company to purchase land and build a house on, which I will then rent out to myself and at some time in the future get a personal mortgage and buy it back from my own ltd company?

Answer

The first question I would ask is why not do it yourself from the start; however, I suspect that your cunning plan is to offset a lot of costs; planning consent charges, architects’ fees etcetera against your company’s profits. HMRC would most definitely view this as a taxable benefit; unfortunately, there are no clever wheezes that will let you have tax-free money from your company.

UK Tax Questions Answered

Keyboard player’s medical costs

I am a self-employed professional keyboard player and 3 weeks ago I was involved in a car accident which left me with 3 broken bones and damaged ligaments in my right hand. My main income is from session work, but I will not be able to work until my hand is sorted, which will involve an operation. The NHS have agreed to do it, but the waiting list is around six months. As I can’t work until my hand is back, would HMRC allow me to pay for private medical treatment, which means I’ll be able to work approximately 6 weeks after the operation and ultimately pay a lot more tax?

Answer

Your question is very similar to one I had from a guitarist three years ago and which featured in one of my blogs (See: https://www.morganjones.co.uk/2016/09/uk-tax-questions-answered ).

There has been a Tribunal case on this issue, Prince v Mapp which is relevant to your question and the key question to be asked is whether or not your keyboard playing is purely for business purposes. As you are a full-time professional musician, if you are able to satisfy HMRC that the primary purpose of the treatment is to allow you to continue to conduct your business, then the medical treatment costs can be claimed in full.

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.