SME Tax News

In Stephen Kitching v HMRC TC02781 [2013] an accountant taxpayer was denied income tax relief for his trade losses. His sports shop had not made profits for 14 years running.

In Russell Baker v HMRC TC02790 a purchase of own shares was voided on a technicality and the Tribunal had to decide whether the payment received by the taxpayer was taxable as a distribution instead of capital.

The taxpayer fell out with other shareholders and it was agreed that the company would repurchase his shares. The repurchase was later found to be void in company law because the company had a deficiency of reserves and the directors failed to make a declaration to allow a payment out of capital.

HMRC sought to tax the repayment which was out of assets and cash as a distribution under s415 ITTIOA 2005 on the basis that the payment was actually the release of loan to a participator in a close company.

The tribunal found that the payment was unlawful and this meant that the contract to purchase the outgoing shareholder’s shares was void. The company was therefore entitled to its money back and the sum was not taxable as income.


In Mr Deepak Koshal Mrs Minu Koshal v HMRC TC02826 [2013], a couple held a property portfolio in joint names, however, the husband claimed that beneficial ownership of the property had been transferred to his wife, and so rental income was taxable on her alone. HMRC disagreed and raised an assessment on accountant Mr Koshal, levying penalties at 20% of tax lost.

Under sections 836 and 837 ITA 2007 (formerly s282A and B ICTA 1988) income from property held jointly by spouses (and civil partnerships) is taxed 50:50 unless there is evidence that neither has any beneficial entitlement to the property or an election is made using Form 17. The Koshal’s had made no such election. There was no evidence to show any transfer of beneficial ownership to the wife and the properties had been purchased using jointly owned case and loans from the husband, however she alone managed the property and collected rents. The tribunal ruled that the property income should be taxed 50:50.

How to prevent this problem occurring? There are three ways to avoid this type of situation arising, see Joint property: legal v beneficial ownership

Tax Credits Annual Declarations TC603D or TC603D2 (renewals) need to be submitted by 31 July 2013 in order to avoid loss of benefits.

In Elizabeth Moyne Ramsay v HMRC [2013] UKUT 0226 (TCC) the Upper Tax Tribunal (UTT) allowed a taxpayer Capital Gains Tax s162 incorporation relief (roll over) on the transfer of her ordinary property letting business (a small appartment block) to a company. It decided that letting was "a business" for s162 relief.

Just a short update this time. We have a new guide to Schedule 36 Information notices and also a new guide that illustrates changes to the IHT rules, now that the Finance Bill 2013 has been enacted.


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