June Q&A

Should VAT be charged when renting rent out a desk?
Q. A business allows one of its subcontractors to use a desk and chair in its office, they also have use of the communal kitchen and toilets. The subcontractor pays the business a fixed amount each week, irrespective of how much time is spent there. Should the business charge him VAT on the fee?

A. The starting point is that most supplies of land, including rent, are exempt from VAT. However, to qualify as a land supply, there are four things that must be met:

1. The supply must be for a specified piece of land.
2. For a specified time period.
3. The tenant/user must be able to use the land to the exclusion of all other parties.
4. There must be consideration paid by the tenant/user.

In the example above, the subcontractor does not have a specific area that he is allowed to use, so the arrangement falls short of a rental agreement. The business must therefore charge him VAT. However, if he was given his own locked room at the premises, which he controls with his own key, and no other person can use the room. This would enable a rental agreement to be secured, which would not be subject to VAT. However, it would be wise to formalise the terms with an agreement signed by both parties.

Can you create a separate business for new activity?
Q. Mr and Mrs Jones are VAT registered as a partnership, trading as a town-based DIY store. They plan to expand their activities by selling Christmas trees but will only have sales in November and December. The total annual turnover will be less than the compulsory registration threshold. Should they form a separate business to avert a VAT liability on these sales?

A. If Mr and Mrs Jones were only selling to VAT registered businesses, these customers could claim input tax in most cases, so charging VAT would not be a problem. However, in this case, the sales of Christmas trees is going to be to consumers.

As the DIY store and Christmas tree sales are very different activities, there should be no problem in forming a separate legal entity, as long as you keep separate accounting records, bank accounts, invoices and so on. It may be advisable for Mr or Mrs Jones to become a sole trader for this activity, i.e. a different legal entity to the partnership.

Can you employ your spouse, and would the cost be allowable?
Q. Mr Green is a UK citizen and the sole director of a limited company that has no employees other than himself and conducts its business solely in the UK. He would like his wife to become a director of the company and to pay her the same salary as he takes (£12,570) through PAYE as she assists him in the running of the business and has also contributed to the funding of the business through Mr Green’s director’s loans. Can he do this and if so, how?

A. You are certainly allowed to pay your wife a salary for her work for the company. If the salary she is going to receive (i.e., £12,570), is commensurate with the work she does for the company, then that is fine. Her salary will be allowable for the company for corporation tax purposes, and there will be no comeback on you personally. A good way to gauge what is commensurate is to ask yourself what you would pay someone else to do the same amount of work. However, if £12,570 is more than you would pay someone else, HMRC would probably treat the excess as your personal salary.

Will helping my daughter with overpaying her mortgage payments have tax implications?
Q. I want to gift my daughter £5,000 a month to pay extra off her mortgage. Will she have to pay tax or a penalty on this?

A. Your daughter will not have to pay tax or a penalty on this. If you survive for seven years after gifting to her, those transfers will not count for inheritance tax (IHT) purposes. But if you do not, the £5,000 transfers will be deemed ‘failed’ potentially exempt transfers (PETS) and included in your estate when you die. This could result in your inheritors paying more IHT.

What are the tax rules for reporting crypto profits?
Q. Mr Grey made a small profit on cryptocurrency in the tax year 2022/23. It is less than the annual exemption for CGT purposes. If it is less than the CGT allowance, does he need to declare it on a self-assessment return? 

A. HMRC states (in its Cryptoassets Manual) that profits made by individuals from cryptoassets are subject to capital gains tax. HMRC states that an individual is not required to make a self-assessment return of chargeable gains when:

1. The total consideration for all disposals does not exceed four times the annual exempt amount (so for 2024/25: £3,000 x 4 = £12,000).
and
2. The total chargeable gains do not exceed the annual exempt amount.

Editor, Andrew Wayness, Partner JRW Hogg & Thorburn