This site uses cookies. By continuing to browse the site you are agreeing to our use of cookies. To find out more about cookies on this website and how to delete cookies, see our Cookie Policy.
Analytics

Tools which collect anonymous data to enable us to see how visitors use our site and how it performs. We use this to improve our products, services and user experience.

Essential

Tools that enable essential services and functionality, including identity verification, service continuity and site security.

Where Taxpayers and Advisers Meet

New LTD

ltd101
Posts: 47
Joined: Sat Feb 16, 2013 9:54 am

New LTD

Postby ltd101 » Sun Nov 29, 2015 9:09 pm

Property investment company (company A) holds five unencumbered properties via DLA, all funds lent from husband & wife who hold one share each.

One of the properties within the ltd has subsidence & has obtained planning permission for a large c 150k building works. Husband decides that he would like to start a property maintenance & buildings company (company B) to manage the properties day to day & also do the building works for company A.

Company B (1 share owned by husband), has a contract with company A to complete the works at an agreed (+VAT) price.

Company B buys the materials & contracts builders to complete the works for company A. Company B registers for VAT to obtain VAT back on materials. The LTD also manages the properties for company A.

Questions:

1/ does it matter if company B is owned just by the husband? Can his wife own that too?
2/ What profit % margin should company B charge on the building works?
3/ Does company B have to recieve the rent then pay it to company A for management or can Company A just pay Company B a percentage eg 15% directly?

RMC
Posts: 433
Joined: Wed Aug 06, 2008 3:35 pm

Re: New LTD

Postby RMC » Sun Nov 29, 2015 11:03 pm

1/ Does it matter to whom?
2/ 0% - ∞%
3/ Tenants normally pay the landlord.

ltd101
Posts: 47
Joined: Sat Feb 16, 2013 9:54 am

Re: New LTD

Postby ltd101 » Mon Nov 30, 2015 7:22 am

1/ does it matter to Hmrc

2/ 0% profit margin - seems questionable no?

3/ if it's being managed by company b, tenants normally pay mngt agent then mngt agent pays the landlord in my experience. Would Hmrc have an issue if fully mngd by company b but company gets the rent directly and just pays company b a 10% mngt fee

section 44
Posts: 4468
Joined: Thu Oct 30, 2008 12:47 pm

Re: New LTD

Postby section 44 » Mon Nov 30, 2015 11:58 am

holds five unencumbered properties via DLA
what does this mean?
all funds lent from husband & wife
what did the company do with these funds?

RMC
Posts: 433
Joined: Wed Aug 06, 2008 3:35 pm

Re: New LTD

Postby RMC » Mon Nov 30, 2015 1:04 pm

Quote:
"1/ does it matter to Hmrc

2/ 0% profit margin - seems questionable no?

3/ if it's being managed by company b, tenants normally pay mngt agent then mngt agent pays the landlord in my experience. Would Hmrc have an issue if fully mngd by company b but company gets the rent directly and just pays company b a 10% mngt fee"


What makes you think that HMRC interfere in company management? Their raison d'être is to collect taxes.

section 44
Posts: 4468
Joined: Thu Oct 30, 2008 12:47 pm

Re: New LTD

Postby section 44 » Mon Nov 30, 2015 1:08 pm

3 - what managing services would company B be doing in return for its fee? would this be arm's length?

ltd101
Posts: 47
Joined: Sat Feb 16, 2013 9:54 am

Re: New LTD

Postby ltd101 » Mon Nov 30, 2015 8:01 pm

Section 44

5 unencumbered properties via DLA just means, husband and wife lent personal funds via a directors loan account to buy 5 properties in cash with the funds

ltd101
Posts: 47
Joined: Sat Feb 16, 2013 9:54 am

Re: New LTD

Postby ltd101 » Mon Nov 30, 2015 8:03 pm

Managing the properties, taking tenant calls, organising handymen etc

Ian McTernan CTA
Posts: 1232
Joined: Wed Aug 06, 2008 3:02 pm
Location: Bedford
Contact:

Re: New LTD

Postby Ian McTernan CTA » Thu Dec 03, 2015 11:40 am

Your missing the obvious. Company B has registered for VAT, and will hence have to charge VAT on the management charges. Company A cannot recover that cost, hence it's now become a cost to Company A.

The VAT position of the building works needs careful analysis to determine whether, in fact, there will be much (if any) applicable VAT to recover. I'd recommend you or the client get chapter and verse from a VAT expert (I'm going to shamelessly plug www.thevatpeople.co.uk here, they are who I turn to in matters VAT related!).

The management charge must be done on a commercial basis and with a contract in place (of some description).

You also need to factor in the increased costs in terms of book keeping and accounts production, filing costs, etc.

If the contract is being done by another company, then it needs to be an arms length transaction, so zero profit isn't really an option if you want to keep HMRC off your back.

On another note, not sure that the company is utilising it's funds to best advantage in having the properties mortgage free. Presumably the clients take no actual dividends from the company and extract the net profit via their directors loan accounts.

Not sure the newco is needed at all, total costs need to be added up over the life of the project to see if worthwhile.

Client needs to look at their net yield on funds employed - would it make more sense to remortgage and buy more properties, or extract funds for other purposes- pension, own mortgage, balancing risk and portfolio, etc.
McTernan Associates Ltd
Chartered Tax Advisers
Bedford
Email through link on website:
http://www.imcternan.com


Return to “Property Taxation”