A company invest on wine as an investment
The company sold some of the bottle of wine for about £14000
I trust wine disposal are chattle and exempt from CGT for individuals
Is it the case for the corporation tax treatment?
The cost and disposal of each bottle of wine is less than £6000. The investment on wine form the company's balance sheet
We have added back the proceeds from the investment to the trading profit, but I am not sure whether company needs to pay corporation tax on disposal on this investment
Greately appreciated any thoughts
Replies (43)
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As far as I'm aware there is no exemption for investments in wine under a Ltd company so CT would be due on the gain.
Sorry probably didn't make myself clear. Was specifically talking about there being no cgt exemption.
I don’t follow. Although companies don’t pay CGT they are generally entitled to the same exemptions when calculating chargeable gains.
Is it not trading ?
Correct me if I'm wrong (facts are thin on the ground), but this wine seems to have been bought with the intention that it was to be sold - albeit a long time (we don't know how long) down the line.
You could well be right. I was responding specifically to point made in the first answer, but also on the premise that the OP’s opening statement is factually correct.
Really depends also upon whether the wine purchases are an adventure in the nature of trade
Norman Wisdom
Any bottles consumed at company meetings?
With a few exceptions the CGT rules apply to companies as they do to individuals. One of the key differences is that companies pay CT on gains and are not entitled to an annual exemption.
I can see that my comment was not clear. Companies are entitled to the same chattel and wasting asset exemptions.
The company holds this as an investment and stay as an investment on the balance sheet.
Well, HMRC may disagree. Depends on the facts but it looks very much to me that the company could only realise the investment by selling. Therefore the wine was bought with the intention of selling.
How do you counter that argument beyond declaring "no no, it was definitely a investment."
Not that I think the tax is affected by a penny so the point is academic.
You just won't learn, will you? See my comment 15th Oct 2020 07:26.the company sold some bottle of wines that kept as an investment since 2016,
What investments can be realised without selling them?
Is that the issue?
Some investments yield an income whilst they are being held. Shares, for instance. Others need to be sold.
Reclassifying 20 Woodbines as an investment doesn't alter the fact that it's stock in trade.
I agree that the first question that needs to be addressed is whether the activity is trading or investment. However, that is a quite separate answer to the one asked by the OP. I don’t think that the OP is under any obligation to respond to that point - it’s of no relevance to the particular question asked.
In other words, if the question is changed slightly (and I effectively did in my mind) to:
“If wine is held as an investment...”
There is absolutely no need to consider the alternative.
I do disagree that the tax is unaffected, though.
Most investments are capable of providing income in some way.
This is not an investment
Sole purpose was hope to sell at a profit. Balance sheet should state as stock.
Norman Wisdom tax case
That was silver, but same thing
Wine and silver serve no purpose other than hope of profit
Buying and selling is trading
You seem to have some inside information as to the owner’s intentions. I assume that you are familiar with all of the badges of trade?
I have to say that 4 years isn’t a terribly long time to hold wine as an investment so it may well be the case that on the facts we do in fact have a trade here. However, as I noted above, that isn’t really relevant to the actual question asked.
Now you do appear to be asking a different question.
Trading - CT with no exemptions
Investment - likely to be exempt.
Since you yourself now appear to have doubts you need to satisfy yourself which one it is. Others here have reasonably suggested that it could be a trade. Without full knowledge of the client and circumstances I would not be prepared to be as certain as others. For that reason, and because I thought I was answering a different question, I’m out.
Thank you Wilson
I need to get some background information
Hurray. Got there in the end.
Surely as an Accountant you should not take everything at face value.
Edited as I saw a later comment - obviously didnt get there in the end! Still trying to persuade us its an investment with no details/details showing the contrary.
COMMISSIONERS OF INLAND REVENUE v FRASER(1) (1940-1942) 24 TC 498
No. 1227–COURT OF SESSION (FIRST DIVISION)–
7TH AND 8TH JULY, 1942
Income Tax, Schedule D–Trade–Isolated transaction – ‘Adventure in "the nature of trade.’
In 1937 and 1938 the Respondent, a woodcutter, bought through an agent for resale whisky in bond for £407; the whisky was sold in 1940 for £1,131. This was the Respondent’s sole dealing in whisky: he had no special knowledge of the trade, and he did not take............
Whisky on this one. Never done it before. No other badge
Well clearly if the facts of that case are on all fours with those of the OP’s client the indicator points to trading. But are they?
Comments such as “the company has bought them as an investment for realisation of the profit” don’t help the analysis :-)
Just asking.
Because there isn’t enough information yet to enable a meaningful answer.
(Although I did attempt to answer the OP’s original question.)
Ask the business owner for a copy of the advice they received when they determined it was optimal to purchase the wine in the existing company. Or are they really only asking for the tax implications now, 4 years later?
Sold some wine for £14,000 (no frequent sales) making profits of £17,000? I want a piece of that.
Just for interest, is this like 10 bottles at £1,400 each, or more like 1,400 bottles at £10 each?
By the way, I love your comment "I need to get some background information". That's something we can all agree on.
bough originally 2008/2013 and 2014
bought from JJM and Corney & Barrow
invoice was issued
description not more than Case 3 in terms of numbers
sale and purchase are less than £6k
profit is £14k ishpurchase range
1815
1320
700
687.5
687.5Sale range
5850
5400
720
3825
3825
So the company "invests" frequently.
I would suggest that the number/frequency of sales is more relevant. Most investors that I come across have made more than one acquisition.
I would suggest that the number/frequency of sales is more relevant. Most investors that I come across have made more than one acquisition.
Well, I'm open to being swayed.
Unfortunately, the more the OP tells me, the more it confirms my initial impression.
I'm not disagreeing. On what we've been told so far I'm definitely falling off the fence on the side of trade. However, there is enough missing information to keep me from hitting the ground.
shakiba
Don't know how many times you can repeat that this was an investment, based merely, it seems, on the balance sheet treatment & 'no frequency of sale'.
You need to take a big step back from that view first.
First you need to justify whether or not an investment, mainly determined by case law. The tax treatment can only be considered from there.