Find out what we have been answering for you this month…

Q

I have a question about turnover relevant to the VAT registration.

Should the turnover be net or gross of sales items refunded? I’m asking for an eBay trader who has a 10% returns rate so it’s quite a significant amount and could be the difference between registering or not.

A

The turnover figure is the total of everything you sell that is a taxable supply, this is covered within HMRC’s guidance below within the section of taxable turnover, if they have goods which have been returned and they refund the money to the customer then this is not a sale and should not be included in the turnover figure, the correct treatment of refunds are covered within VAT notice 700 the VAT guide section 8.13.1

Q

The company purchased a property in August 2003 with a value of £239,320.

It sold the property in October 2022 for £340,000.

There were sale fees of £10,680.

This would ordinarily give a taxable gain of £90,000 in the company.

By my calculations, they are able to claim indexation relief at 0.531 on the purchase price, therefore giving a relief of £127,079 meaning there is no taxable gain.

My questions regarding this are as follows:

1. I presume indexation is limited so it cannot create a loss which can be carried forward against other gains?
2. Do we need to separately include the indexation anywhere on the CT600?

A

1. Correct, indexation cannot create or increase a capital loss.
2. No claim is required for indexation allowance on the CT600, it should already be included in the computation of the chargeable gain. See HMRC’s internal guidance: https://www.gov.uk/hmrc-internal-manuals/capital-gains-manual/cg17231

Q

I have a client who lets residential property through it’s LTD company.

Currently remortgaging one of the properties and is being charged a product fee of  25k by the lender which adds to the mortgage.

Can the 25k be claimed as a tax deductible expense in the p and l in total ,when the mortgage begins?

A

If the mortgage (loan) is not used for trading purposes, for example because the company does not have a trade, it will be dealt with under the non-trade loan relationship rules. This means the cost would be ‘netted off’ a non-trading loan relationship profit or relieved as a non-trading deficit under CTA 2009, Pt.5 Ch 16.

All expenses incurred in connection with obtaining loan finance and other related ‘loan relationship’ (LR) costs are deductible for tax purposes under CTA 2009 s.306A(1) and (2) for companies. This outlines that costs incurred in bringing loans into existence and related transactions and would cover such items as abortive costs relating to obtaining loan finance (as to which see CTA 2009, s. 329), the costs of varying the terms of the loan, bank commitment fees, etc which would all be deductible under this provision.

Since this product fee is a result of the mortgage you can claim this as a deductible expense under these provisions.

As the tax relief itself is based around the accounting treatment, it is necessary to determine how you would give relief for the cost for accounting purposes.

FRS 102 stipulates that loan finance costs should be amortised over the life of the loan. Thus, where the accruals basis is adopted (as will normally be the case), the tax relief for the loan finance costs would be based on the amount amortised in the accounts.