HMRC Questioning my Ltd Company

by Readers Question

3 years ago

HMRC Questioning my Ltd Company

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HMRC Questioning my Ltd Company

On the advice of my accountant about four years ago, I (they) set up a limited company for me to run my own portfolio of around 55 properties through. HMRC Questioning my Ltd Company

With interest rates at an all-time low, cash flow is very positive so the Ltd Company sounded good to lower mine and my wife’s own tax liability.

We put through a fixed amount (15%) of the yearly rental income that would be similar to high street letting agents. This amount is based on the fact that we manage all the maintenance and file any eviction paperwork and attend court ourselves, so the 15% was deemed to be fair.

For the first year of the Ltd Company (tax year 10/11) we put in the region of £65k through it. This lowered our own personal income band to just below the 40% band and we only paid the Ltd company tax at I think the rate was 21%. I hope that makes sense.

Four years later HMRC are saying that the Ltd Company is just an avoidance scheme and therefore cannot be used.

My accountant is in the process of debating this with them.

I would welcome any feedback whether good or bad.

I am aware of other local landlords that have done similar.

Many thanks

Mark

Comments

Mark Alexander

3 years ago

Hi Mark

I can't see anything wrong with your scheme and wish you and your accountant ball the best in getting this matter resolved.

Please keep us informed as I know that several landlords have structured their tax affairs this way. They will, no doubt, be very worried when they read this post.

As you may know, British law is partly based on legislation and partly based on case law. The following is one of my favourite quotes so far as tax case law goes. It is from the case of Inland Revenue Commissioners v The Duke of Westminster (1936 19 TC 490), which held: “Every man is entitled, if he can, to order his affairs so that the tax attaching under the appropriate Acts is less than it otherwise would be.”

Chin up!
.

Ian Ringrose

3 years ago

Does your company have any other customers apart from you?

Is your computer a member of any of the agent registration bodies?

Did the tenant pay the rent to the company with it passing on 85% to the landlord?

Mark Smith

3 years ago

Hi Mark and Ian, thanks for the replies.
The company doesn't have any other customers, just us.
My company is a member of the NLA and also I am a member of the local Landlord Association, I am also an accredited landlord with Portsmouth City Council. The tenants pay all the rent into one pay in account and then the commission is deducted.
Any thoughts or further questions.

Thanks Mark Smith

Mark Alexander

3 years ago

Reply to the comment left by "Mark Smith" at "22/09/2014 - 14:27":

Hi Mark

We have another Mark Smith on the forum who is a barrister-at law.

To save members getting confused between the two of you, would you mind adding a picture to your member profile please?
.

Mark Smith

3 years ago

Have done so Mark 🙂

Ian Ringrose

3 years ago

Reply to the comment left by "Mark Smith" at "22/09/2014 - 14:27":

-> The tenants pay all the rent into one pay in account and then the commission is deducted.

That does not sound like any letting agent I know, most agents pay OUT the 85% to the landlord rather than have the rent pay into an account in the landlords name, with the commission being paid to the agent.

Likewise not being a member of “safe agent” etc does not make your company look like a letting agent. If your company managed property for other people, even if only 1 or 2 then you would have a better case. At the end of the day it comes down to a “duct test”.

Therefore the company looks a lot like a way just to pay less tax, I think you will have a hard fight on your hands, but I can’t predict the outcome.

Oliver D

3 years ago

Out of interest, is HMRC asking you to simply not use this structure going forward? Or, are they asking that you pay the tax that would have been due over the last 4 years had this income been yours?

Romain Garcin

3 years ago

Why would an agent be a member of the NLA?

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