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March questions and answers

Newsletter issue - March 2021

Q. I am looking at buying a rundown pub/restaurant ready for this summer, assuming it will be allowed to open. I need to spend approximately £100,000 on building works. Can I register for VAT straightaway or do I need to wait until I open?

A: Yes, you can register for VAT as long as you are intending to make taxable sales at some point in the future. As the building has already been used in a trade, check whether there is an option to tax it in force. If so, see if the seller would be prepared to revoke it if possible. This should save you some SDLT, and you won't need to pay the VAT up front, meaning there is a cash flow advantage too.

Q. Two years ago, I sold my business to a company for £200,000 cash up front. There was also an earn-out deal that would see me receive a percentage of sales above a certain hurdle. This was valued (and taxed) at £100,000 at the time. Due to the coronavirus, I have actually only received £30,000. Can I offset the £70,000 shortfall against my income? I have no other capital gains and am very unlikely to have any going forward.

A: A shortfall on an earn-out right is a capital loss and, unlike certain other capital losses, cannot be offset against general income. However, you can elect to carry the loss back to the year the original disposal took place in to reduce your capital gain. You need to make this election in writing and include a calculation showing how you have worked out the loss.

Q. I have been subject to a drawn-out enquiry by a HMRC officer for nearly two years. I have acted in good faith and provided everything that I have been asked to send in, but the officer keeps asking for more and more paperwork. I'm confident that no errors have been made and have written to her to ask for a closure notice, but this has been refused. Is there a way I can force the issue?

A: You can apply to the Tribunal to ask it to direct HMRC to close the enquiry using form T245, which you can obtain here. It may be worth contacting the officer to inform them of your intentions. It might just give them the nudge needed to close it down of their own accord.