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Company sell wine which holds an investment

Corporation tax treatment on disposal of investment on wine

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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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By SXGuy
14th Oct 2020 18:28

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.

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Replying to SXGuy:
Psycho
By Wilson Philips
14th Oct 2020 18:34

What about the chattels exemption mentioned above, or the wasting asset exemption?

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Replying to Wilson Philips:
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By SXGuy
15th Oct 2020 06:28

Sorry probably didn't make myself clear. Was specifically talking about there being no cgt exemption.

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Replying to SXGuy:
Psycho
By Wilson Philips
15th Oct 2020 08:22

I don’t follow. Although companies don’t pay CGT they are generally entitled to the same exemptions when calculating chargeable gains.

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RLI
By lionofludesch
14th Oct 2020 18:35

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.

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Replying to lionofludesch:
Psycho
By Wilson Philips
14th Oct 2020 18:45

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.

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By Paul Crowley
14th Oct 2020 18:40

Really depends also upon whether the wine purchases are an adventure in the nature of trade
Norman Wisdom
Any bottles consumed at company meetings?

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By shakiba
14th Oct 2020 18:47

The company holds this as an investment and stay as an investment on the balance sheet.

Some of the bottles are kept with the company since 2015/16 then disposed on profit in 2020
The remaining of wine describe as investment in the company's balance sheet
no trading
no personal use
kept for the sake of the investment
made a gain in total but on each bottle, the proceeds and cost are less than £6000

I could only find the CGT treatment for individuals but not for companies

appreciate any helps on this matter

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Replying to shakiba:
Psycho
By Wilson Philips
14th Oct 2020 18:53

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.

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Replying to Wilson Philips:
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By shakiba
14th Oct 2020 19:04

Would this chargeable disposal under corporation tax or they fall under Chattels rule with no corporation tax
As far as I know there would be no CGT for individuals on disposal of wine

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Replying to shakiba:
Psycho
By Wilson Philips
14th Oct 2020 19:26

I can see that my comment was not clear. Companies are entitled to the same chattel and wasting asset exemptions.

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Replying to shakiba:
RLI
By lionofludesch
14th Oct 2020 19:29

shakiba wrote:

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.

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Replying to lionofludesch:
By johngroganjga
14th Oct 2020 19:31

What investments can be realised without selling them?

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Replying to johngroganjga:
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By shakiba
15th Oct 2020 10:46

the company sold some bottle of wines that kept as an investment since 2016,

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Replying to shakiba:
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By Wanderer
15th Oct 2020 11:26

Quote:

the company sold some bottle of wines that kept as an investment since 2016,

You just won't learn, will you? See my comment 15th Oct 2020 07:26.
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Replying to johngroganjga:
RLI
By lionofludesch
15th Oct 2020 08:21

johngroganjga wrote:

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.

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Replying to lionofludesch:
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By shakiba
14th Oct 2020 20:01

That is correct
the company has bought them as an investment for realisation of the profit
what I am not sure whether it falls under the Chattels rule with no CT

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Replying to lionofludesch:
Psycho
By Wilson Philips
14th Oct 2020 20:06

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.

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By Paul Crowley
14th Oct 2020 19:59

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.

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Replying to Paul Crowley:
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By shakiba
14th Oct 2020 20:03

the company hold and recognise it as an investment as no frequency of sale

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Replying to shakiba:
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By Paul Crowley
14th Oct 2020 20:11

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

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Replying to Paul Crowley:
Psycho
By Wilson Philips
14th Oct 2020 20:23

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.

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Replying to Wilson Philips:
RLI
By lionofludesch
14th Oct 2020 20:23

Which do you think don't fit the case ?

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Replying to lionofludesch:
Psycho
By Wilson Philips
14th Oct 2020 20:24

I’m really not interested because that wasn’t the question asked.

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Replying to Wilson Philips:
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By shakiba
14th Oct 2020 20:28

I have been told that they have kept them for a profit
for the fact that they hold them for 4 years
no alterations
no frequent sale
they believe they come under Chattels no CT
I think the previous accountant should have recognised them as stock on the balance sheet rather than investment ( might be wrong)
the company is a trading co, trading on a complete different activities

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Replying to shakiba:
Psycho
By Wilson Philips
14th Oct 2020 20:38

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.

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Replying to Wilson Philips:
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By shakiba
14th Oct 2020 20:53

Thank you Wilson

It is actually hard to say as it sits on the company's balance sheet as an investment

I think it is more a matter of judgement here

I need to get some background information

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Replying to shakiba:
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By Youareatit
15th Oct 2020 08:51

shakiba wrote:

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.

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Replying to Wilson Philips:
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By Paul Crowley
14th Oct 2020 21:20

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

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Replying to Paul Crowley:
Psycho
By Wilson Philips
14th Oct 2020 22:14

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 :-)

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Replying to Wilson Philips:
RLI
By lionofludesch
14th Oct 2020 22:28

Are you just asking questions, Wilson, or are you prepared to answer some ?

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Replying to lionofludesch:
Psycho
By Wilson Philips
14th Oct 2020 22:33

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.)

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My photo
By Matrix
14th Oct 2020 20:10

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?

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By Tax Dragon
15th Oct 2020 07:19

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.

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Replying to Tax Dragon:
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By shakiba
15th Oct 2020 10:46

bough originally 2008/2013 and 2014

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Replying to shakiba:
RLI
By lionofludesch
15th Oct 2020 08:23

shakiba wrote:

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 ish

purchase range
1815
1320
700
687.5
687.5

Sale range
5850
5400
720
3825
3825

So the company "invests" frequently.

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Replying to lionofludesch:
Psycho
By Wilson Philips
15th Oct 2020 09:24

I would suggest that the number/frequency of sales is more relevant. Most investors that I come across have made more than one acquisition.

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Replying to Wilson Philips:
RLI
By lionofludesch
15th Oct 2020 10:47

Quote:

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.

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Replying to lionofludesch:
Psycho
By Wilson Philips
15th Oct 2020 11:16

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.

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By Wanderer
15th Oct 2020 07:26

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.

Thanks (6)
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By Montrose
15th Oct 2020 13:45

Just to add to the complexity-did the Company have a liquor licence?

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Replying to Montrose:
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By shakiba
15th Oct 2020 15:47

why is it important?

surely, the client would ask the reason

would it make any difference in terms of the treatment of the tax here?

thanks

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Replying to Montrose:
RLI
By lionofludesch
15th Oct 2020 16:27

Quote:

Just to add to the complexity-did the Company have a liquor licence?


[chuckle]
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