Member Since: 19th Sep 2000
13th May 2021
Some interesting insights from ICAEW here:
Yes, I've just seen that. Guess it answers my question. Sort of...
16th Mar 2020
When I read the question I took it to be a scheme to get PP on a piece of land for eventual, residential, development. That being so, any "trade" may not be commercial and as you have observed, the sums don't seem to add up (without the planning angle).
It will never be a residential development. For one thing, it's Green Belt land. For another, the client wants to live out his days as what I will loosely call a "farmer". The first plan is goats, and he would love eventually to keep and sell parrots and similar exotic feathered friends. The trade would definitely be commercial - for one thing, he needs the source of income.
15th Mar 2020
Accountant A wrote:
You say 'The planning permission has multiplied the value of the land by 4 or 5, leaving an unrealised capital gain of £137,000.' So why is that relevant unless he intends to sell?
He doesn't want to sell, but the land is in his name, and we wants the whole thing (land and business) in a company. So there is an obvious CGT problem. As there is no business yet, only an asset, I don't think incorporation relief (s162 CGTA) applies. As a rule, I'm a fan of keeping the land in the client's name and putting the trade in a company; he doesn't like that idea, but his reason seems a bit vague. I will have to have a discussion with him on that.
You then say 'Before he can do this [do what?]
Raise goats and sell them.
So to realise a gain of £137,000, he has to spend some/a lot of money. Is the £137,000 net of that money?
The £137,000 is only the unrealised gain. He is arranging bank loans, on the basis of a cash flow forecast which I haven't seen yet.
Finally, you say 'the project will not be affordable if he can't reclaim the input VAT on the improvements'. Do you mean from a cashflow perspective? If his profit hangs on VAT recovery, it's unlikely to be a commercial venture. Does that assume VAT recovery and then no VAT paid on subsequent supplies?
I won't be sure about this until I see the cash flow forecast, but I suspect the problem is he's planning for too small a loan.
I think you need to sit down with the client and get to the bottom of some of the number. If he can make a profit of £137,000 and walk away now, I'm not sure what his other plans that apparently rely entirely on VAT recovery are about.
He doesn't want to walk away because this is his livelihood going forward.
15th Mar 2020
The house seems more debatable. What sort of a case are you making for it being a farm building ?
It's early days in my thinking, so it's very fluid at this point. The fact that the buiding would be removable might be a help. I've had a look for any court cases which seem relevant. Nothing so far, but I will keep looking.
5th Mar 2020
Many thanks to all who responded. I have now found my way to this page. https://www.gov.uk/vat-corrections
I'm not sure I would recommend "just" bunging it into the next return. The situation needs to be documented first, to show that the adjustment meets the conditions spelled out there. Just in case ......
14th Nov 2019
The first point to make here is: if you haven't got it in writing, you haven't got it. That applies to you, just as much as the auditor. The directors are required to go on the record as having looked 12 months ahead of the accounts signing date and found the going concern position satisfactory. So how do you evidence that?
At the very least, I would recommend reaching that opinion in a board meeting, evidenced by the minutes which spell out the directors' thinking. And it wouldn't seem unreasonable for the directors to want a briefing paper from you on the subject.
A briefing paper doesn't have to be long, and the benefit of it would be to force you to spell out your reasoning clearly. Some of what you have written seems bit fuzzy; it's all very well saying that it's been fine so far, for 20 years or whatever, but hey, things change. You said yourself that a cash flow forecast would be out of date as soon as it was written. Yet you also say that the forecast shows a strong position at the end of March 2020....
So, the bottom line. You need to put it in writing, so that the directors can consider the position and put it in writing, so that the auditors can issue their opinion (in writing).
Whether a further cash flow forecast is needed can only be determined by a discussion which is outside the scope of this forum. What's essential is that the directors consider the position, reach a reasonable conclusion and document it. If they have done that, then the auditors should be satisfied.
8th Nov 2019
Many thanks. That seems to cover it.
31st Aug 2019
"Or sell them in tranches not exceeding the CGT annual exemption."
That would take 20 years, and sprightly though she is, she might easily not last 20 years.
31st Aug 2019
I was going to do that. But shareholdings change over time; there are company name changes, scrip issues, rights issues (which might or might not have been taken up). 1982 was 37 years ago...
Some of the shares were inherited from the client's mother in 1978 - I do at least have a list of them, but although I have the declared value of shares on the husband's death in 2012, I don't have a list breaking that down.
31st Aug 2019
The shares have all been in an online account since 2014 - no share certificates anywhere to be found.