Company sold property - restate comparatives?

Previously dormant company sold property but how best to present for HMRC

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A client has previously prepared dormant accounts for a company, however it turns out that actually, it had acquired a property some years prior in two stages, acquiring the leasehold then the freehold. It had also incurred costs for obtaining planning permission etc, evicting squatters etc with a view to developing it.

The client ultimately gave up so instead sold it with planning permission. Having been told about this sale, I now need to do a CT600 and report the tax.

I've introduced the historic expenditure on the freehold, legals, SDLT, insurance, finance costs etc which was incurred from 2016 onwards, in the year of disposal (as though "pre-trading expenditure"). This matches costs against the income from the sale and shows the overall profit on the project. However I'm wondering if I should instead have restated the comparatives and shown b/f trading stock of property costs. But that would only go so far as some of the "detail" of the costs would have gone into the accounts two years prior and been rolled forward.

I suppose I could also just submit the CT600 with a chargeable gain showing, but as there was an element of development in obtaining planning permission I'm thinking this isn't correct and certain costs such as insurance, might then fall away as it's now a gain rather than trading costs arising from property development.

Am I overthinking and HMRC will be happy with a P&L matching revenue against costs?  Grateful for feedback.

 

Replies (9)

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By Paul Crowley
09th Apr 2021 17:18

Did this company have a bank account?
Is he owning up or has he had a nudge?

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By norstar
09th Apr 2021 17:22

There's no question of a nudge and yes there's a bank account. As soon as he's made the sale we've been given the info. The question relates to presentation of the costs going with the sale.

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Replying to norstar:
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By Paul Crowley
09th Apr 2021 17:36

It was not clear that the sale had not already taken place.
Difficult to believe that anyone taking any responsibility as a director would think that the company was dormant (co house meaning)

My guess is that you will sort it at out and not see him again

But HMRC only really interested in the tax being correct. Do not make your own life difficult and charge a full fee
If he could afford to buy a building 5 years ago he can afford full price

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By Tax Dragon
09th Apr 2021 17:39

In the corporate setting, does it change the tax? If there was an appropriation (as I think you suggest), don't the rules regarding such give the answer you want?

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Replying to Tax Dragon:
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By norstar
09th Apr 2021 18:23

Do you mean that the act of setting out to develop, only to abort part way through, defines it as being a trading Co? Therefore b/f comparatives academic really as would have been matched with closing stock, so eventual sale and costs matched is the relevant point at hand? Sorry if I've missed the point!

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Replying to norstar:
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By Tax Dragon
10th Apr 2021 08:01

I was wondering about the tax, not the accounts. (I have no view on your accounts question.) The tax rules your OP brought to mind are set out in Ch10 of Pt 3 of CTA 2009 and s161 of TCGA 1992.

Why so? In your OP you expressed uncertainty about whether the profit on sale was trading or capital. You suggested that the activities had started as a trade but thought maybe that had ceased before actually selling.

At least, that's how I read it. Sorry if I misunderstood. But that's why I wondered aloud whether it mattered, whether it changed the tax. You seemed to think it did. Does it? In terms of quantum of tax, I mean (because that's what I thought you were concerned about). It may well affect the returns - cessation of trading terminating a CT AP etc - but does it change the tax?

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paddle steamer
By DJKL
10th Apr 2021 11:19

Buying with intent to get planning, develop, do works and resell is likely trading, buying with intent to get planning and resell is also likely trading, a halfway house where say groundworks get done then units sold will also likely be trading; as far as I can see trading as a developer does not of itself need actual construction but more intention re the assets.

Over the years we made far more money as "developers" buying, getting planning, then selling (selling at up to ten times our costs) than we ever did actually building anything.

The bulk of the profit is often in getting the planning, something that can take years of effort involving doing road movement surveys, bat surveys and agreeing to build squirrel bridges, shield trees with guards during development and negotiate bungs to pay for playgrounds, school places, affordable housing etc (not that councils actually spend the section 75 (section 106 down south???) monies on what they are intended to be spent, nice little earner for them)

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Replying to DJKL:
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By Tax Dragon
10th Apr 2021 11:53

Indeed, the OP could do with finding out the facts. Better late than never, and all that. (Note that I wasn't opining on that facts (how could I?!), merely noting tax provisions that may, or may not, be relevant.)

Ref s106, I used to think it worked, and worked well, but I'm aware of some recent developments that appear to be no more than a splurge of box-houses (not so much as a play area, far less a shop) in a field with one escape road onto the passing highway and a 5 mile journey down that highway to the nearest town/city. Has planning gone backwards of late?

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Replying to Tax Dragon:
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By Hugo Fair
10th Apr 2021 13:22

Your powers of observation concur with mine - and the dilution of s106 can be seen (in a different variant) in city centres as well, where tinkering with the definition of 'affordable housing' has resulted in the proverbial coach-and-horses being driven at high speed through the needs of existing local incumbents.

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