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Equiniti payments and HMRC


deafasapost

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I have elected to surrender my Ch 69 radio mics over the next couple of months.

 

My accountant is not sure (yet) how the payment is treated. Does anyone know how HMRC are going to view these "grants"?

 

Are such payments taxable income, after all we are forced to make these changes. At first OFCOM called the PMSE funding as compensation.

 

I have not heard or read anything definitive on the subject.

 

Anyone here know the correct way to deal with the payments?

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As far as I can see, It's effectively a 'Sale' of equipment and should be treated as income from a sale, the replacement you buy will be a 'purchase' and allowable against tax. VAT rules also apply.

Nothing complicated, I would change your accountant!

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As far as I can see, It's effectively a 'Sale' of equipment and should be treated as income from a sale, the replacement you buy will be a 'purchase' and allowable against tax. VAT rules also apply.

Nothing complicated, I would change your accountant!

 

OK, I can see that is one argument, but those who decide to have the equipment modified still get the funding and get to keep the kit. So they are not "selling" in that case.

 

I am not VAT registered and will not be buying replacement radio mics. I have decided to rent them when I need to.

 

I would be interested to see if anyone else has opposing views about how the grant is accounted for.

 

P.S. My accountant is good, she is just not sure if this is classed as compensation which is not taxable..

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As I understand it, the payment from Equiniti is in fact a subsidy, and is a percentage of the ex-VAT replacement cost of the equipment in question. as such I don't believe that there will be a tax element involved with that subsidy. BUT there will of course be a tax liability attached to the purchase, so those who are VAT regd can reclaim that figure in their quarterly return.

 

As for income tax, (which I suspect is what the accountant is questioning) I would expect that the subsidy from Equiniti would not be treated as income in general, more - as you suggest - as a compensation payment . However, as you're not planning to reinvest your compensation in replacement kit, that MAY change...

 

However, I am not an accountant so am unsure whether I'm speaking total bull...

Maybe your accountant should actually ask HMRC the question.....

;)

 

 

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However, I am not an accountant so am unsure whether I'm speaking total bull...

Maybe your accountant should actually ask HMRC the question.....

;)

 

Thanks for the reply.

 

I am sure she (the accountant) will ask the right questions, but I was hoping that someone on the forum had already trodden this path, because there does seem to be different opinions.

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It's not rocket science...

 

If you go the modification route you receive a payment based on the invoice copies you submit. Any income will be matched by an equal expenditure. Net result is zero so no tax is payable although you ought to show the income and expenditure in your accounts as normal.

 

If you go the surrender route you are transferring ownership of the equipment (ie selling it). Any money received is therefore income and should be treated in the usual way for disposal of capital equipment. If you buy replacement kit then that too is treated normally as a business expenditure.

 

If you go the surrender route and don't plan on buying any replacement equipment it is no different to sticking the kit on eBay. You've sold it.

 

 

It certainly isn't 'compensation' which has a very specific definition in tax law. It also isn't a 'grant', however, even if it were, grants count as business income.

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It certainly isn't 'compensation' which has a very specific definition in tax law. It also isn't a 'grant', however, even if it were, grants count as business income.

 

Well it must be business income then. Equiniti in their Terms and Conditions descibe the payment as a grant, but at the outset OFCOM called it compensation.

 

Obviously I will leave it to professional advice, but I was just interested in what others here might think.

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  • 3 weeks later...
The payment notification we received stated that if you are not VAT registered, the total amount has an additional 20% on it to compensate. So as a VAT registered company, the payment does not include VAT so must be a VAT exempt transaction I imagine.
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If you go the surrender route you are transferring ownership of the equipment (ie selling it). Any money received is therefore income and should be treated in the usual way for disposal of capital equipment. If you buy replacement kit then that too is treated normally as a business expenditure.

 

 

On this basis it sounds like it should all be treated under the arrangements for capital equipment. If the Equiniti payment exceeds the current book value for the equipment surrendered, the difference would be taxable. If it falls short, then the difference would be an allowable write-off. Any new purchases of equipment would be treated as capital spend and you would only be able to claim capital allowances on this in accordance with your accounting policy and HMRC guidelines and not make a full claim in your accounts for the replacement costs.

 

Unfortunately, it won't necessarily balance nicely and what the government gives with one had it can take away with the other!

 

Jason

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Has anyone confirmed the VAT status of the payment we receive - as in is it a standard rate supply or a VAT exempt one?

 

I have received this from Equiniti:

 

 

Q. What is the tax status of the funding payment?

 

 

Ofcom is not in a position to provide tax advice and people who receive funding should rely on their own professional advice. However, Ofcom did look at the likely tax status of funding payments when drawing up its policy. It has received legal advice that the key issue to consider when assessing the VAT status of the funding payment is whether it is made in return for goods or services. Although the scheme requires people to surrender the PMSE equipment they are claiming for (except when they choose to modify it), Ofcom understands that this is unlikely to be considered as a taxable supply subject to VAT because the purpose of surrender is to verify the equipment exists, meets the criteria of the scheme and will no longer be used in channel 69. IF HRMC took a different view, no additional funding would be provided. Further information can be found here:

 

http://www.hmrc.gov.uk/manuals/vatscmanual/VATSC50400.htm

 

 

 

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