November Questions and Answers
Newsletter issue - November 2021
Q. My company has issued a new class of shares to my adult children. However, these have been issued unpaid - with the amount available to be called at any time, though more likely to be paid in increments over the next few years. Both children work for the company full time. Is there an issue with a potential s. 455 charge?
A: HMRC's view used to be that where shares had been issued but remained wholly or partly unpaid, s. 455 should apply to the outstanding amount. However, following the judgment in a First-tier Tribunal hearing in 2014 it changed this stance. The situation now is that s. 455 won't usually apply to these arrangements.
However, there is anti-avoidance legislation in s. 464A of CTA 2010 that can mean a charge arises in some circumstances, but this would only be the case where the shareholder uses the unpaid share capital to extract profits or assets from the company with no tax charge. It's unlikely that this will apply to the simple family company situation you describe. There is of course no harm in familiarising yourself with the guidance though.
Q. Earlier this year, one of our employees was permitted to take one of the company-owned projectors we use for seminars home for a couple of months to use for films and sports screenings. The company didn't need this as we were prohibited from organising in-person events at the time. I happened to mention this to our accountant who is adamant that there will be a tax charge, but as the employee only had the equipment for six weeks, I was under the impression that private use was minor (i.e. only six weeks out of 52, and then only for a few hours a day). Who is correct?
A: Your accountant is right, the amount of time the equipment was used for is irrelevant, it's the fact that it was available for the employee's personal benefit that is the key factor. However, the charge is likely to be relatively low due to the short duration. To work out the reportable amount, you need to make a reasonable estimate of the value of the asset at the time it was first made available to the employee. You multiply this by 20%, and then pro-rate to ensure that the charge is restricted to the six-week loan period. So, if the equipment was worth £1,000, the chargeable amount would be £1,000 x 20% x 42/365 = £23. A higher rate taxpayer would therefore pay just £9 in tax on this, which seems like a reasonable price to pay. Of course, if the value of the equipment is considerably more, the charge will increase.
The other thing to note is that there will also be a Class 1A NI charge on the company, and the £23 benefit will need to be reported on the P11D.
Q. I am in the process of selling a buy-to-let property. My conveyancer has warned me that I need to complete a "30-day CGT return". However, I'm sure I read that I can just wait and include the sale on my tax return instead. Is this correct?
A: You need to do both. A UK property return is required, though the window has now been increased to 60 days after completion following the Budget last month. You need to make a best estimate of any tax due on the disposal, taking into account any losses that have arisen prior to the completion date, as well as any private residence relief and available annual exemption. You will then report the gain on your self-assessment return, claiming a deduction for the advance payment.