Due to a re-interpretation of the law, HMRC announced that from 6 April 2013 sleeping partners will be liable to pay National Insurance. Affected persons should consider the following:

• Sleeping and inactive limited partners who are not already paying Class 2 NICs will need to register. They can claim for exception from these contributions if their circumstances allow, for instance if their profit share is below the required limit.
• For 2013-14 and subsequent tax years Class 4 contributions will also arise.
• Sleeping partners who have not paid contributions in prior years will not be required to do so. However they may consider making voluntary contributions to improve their accessibility to benefits.

 If you have been treated as a sleeping partner up to 5 April 2013 you should take action to register for Class 2 purposes otherwise you run the risk of incurring penalties.

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Last year a case was heard before the First-tier Tribunal that found a Furnished Holiday Let (FHL) property should not be considered an investment for Business Property Relief (BPR) purposes. This was an important decision for owners of FHL businesses as it confirmed the availability of BPR for Inheritance Tax purposes. If the property in this case had been considered an investment property, BPR would have been denied.

HMRC appealed the First-tier ruling to the Upper Tribunal who have reversed the previous decision.

It would appear that FHL property owners again need to demonstrate that the nature of any additional services provided to persons letting their property are substantial and not merely incidental to the letting of the property. If the additional services are considered to be substantial then a BPR claim may succeed. Otherwise the letting activity will be treated as an investment and BPR will be denied.

In the light of the further ruling FHL property owners should re-examine their Inheritance Tax position. It is possible that an appeal will be made but until then this case remains the current authority.

For Income Tax purposes there is a clear definition of a FHL property. As long as your letting of a property falls within the following criteria it will be considered a FHL and treated as a trade or business.

The definition for Inheritance Tax BPR is again at odds with the Income Tax definition which merely considers periods of letting thus: 

• The minimum period over which a qualifying property must be available for letting to the public in the relevant period is 210 days in a year
• The minimum period over which a qualifying property is actually let to the public in the relevant period is 105 days in a year.
• The accommodation must not be let for periods of longer-term occupation for more than 155 days during a year.
• A “period of grace” allows FHL businesses that don’t continue to meet the “actually let” requirement for one or two years to elect to continue to qualify throughout that period.
• The property must be situated within the UK or EEA.

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You may be interested to know that the answer to the title of this post is yes, if certain conditions apply, a repayment of VAT is a taxable receipt. Consider the following tax case where VAT was charged by mistake.

Shop Direct Group discovered that they had accounted for VAT on a large number of transactions in error. As a result HMRC repaid a significant amount of VAT and included statutory interest. As the repayment was a refund of VAT previously paid the group treated the receipts as outside the scope of corporation tax.

HMRC disagreed. They contended that the repayment of VAT arose out of the Group’s trading activities and should be included in their self-assessment for corporation tax purposes: it was a trading receipt. They also sought to tax the statutory interest receipt under normal corporation tax rules.

Shop Direct Group appealed this decision and both the First Tier Tribunal and the Upper Tribunal dismissed their appeals.

Readers should note that the decision in this case does not mean that refunds of VAT arising from reclaimed VAT input tax are taxable.  Shop Direct Group received their VAT refund as they had incorrectly accounted for VAT on certain retail sales.   

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