Chester 01244 405555

Grosvenor Court
Foregate Street Chester
Cheshire CH1 1HG
DX: 19990 Chester

Shrewsbury 01743 443 043

Lakeside House
Oxon Business Park
Shrewsbury SY3 5HJ
DX: 148563 Shrewsbury 14

Manchester 0844 800 8346

Pall Mall Court
61-67 King Street
Manchester M2 4PD

Send us a message
Our Offices

Timing Issue Leads to Tax Argument

16th January, 2014

When a consultant commenced work for a client, her intention was to carry out the work through a limited company.

She ,however, delayed forming the company and because of this her first consultancy invoice was sent to her client before the company had been formed. The invoice was raised in the name of the company she intended to form. The invoice related to work carried out between January and December 2005 and was issued on 31 December 2005. The company was formed on 4 January 2006.

When the invoice (for more than £2 million) was paid, the income was recognised in the consulting company’s accounts, and was not declared as personal income by the consultant.

HM Revenue and Customs (HMRC) concluded that the income should have been treated as that of the consultant, not the company, which, they argued, could not have earned it since it did not exist at the time the income was earned. Key to their contentions was that the person responsible for paying tax is ‘the person receiving or entitled to’ the profits. Accordingly, they sought to tax the consultant personally (and to charge interest and penalties).

The dispute came before the First-tier Tribunal, which concluded that the consultant would never have been legally entitled to the payment and had not in fact received it personally. HMRC’s contentions were therefore rejected.

The matter would have been very unlikely to have been raised had the invoice been dated a few days later or the company incorporated earlier, and the case clearly illustrates the point that with care and forward planning, potential arguments can be avoided.

When you are planning your next business venture or development please contact Mark Briegal on 01244 405563 or email [email protected]

 

You might also be interested in...

Solicitors’ Professional Indemnity Insurance: Run-off and alternative regulators

18th July, 2018

Special Focus: Solicitors’ Professional Indemnity Insurance Run-off – it dominates the thoughts of sole practitioners and partners in smaller law firms in my experience and restricts the ambitions of firms. The SRA could help law firms by relaxing their rules on run-off cover on their Solicitors’ Professional Indemnity Insurance to help firms merge or close more easily. This would protect... Read More »

Senior employment lawyer joins Theatr Clwyd board

17th July, 2018

Helen Watson, Head of Employment Law at Aaron & Partners LLP, has taken up an invitation to become a Trustee of both the Trust Board and the Main Board Theatr Clwyd has bolstered its senior leadership team with the appointment of an experienced employment law solicitor to support its vision of being at the forefront of theatre making... Read More »

Why there is more to CSR than just boosting a company’s ego

6th July, 2018

When a business invests in its community it deserves praise – but it must go beyond that, writes Helen Watson, a trustee at Claire House and partner at Aaron and Partners Solicitors. Corporate social responsibility (CSR) is the link between a company and the community in which it operates. As a trustee on charity boards including Claire House... Read More »

Contact Us