How JustAnswer Works:
  • Ask an Expert
    Experts are full of valuable knowledge and are ready to help with any question. Credentials confirmed by a Fortune 500 verification firm.
  • Get a Professional Answer
    Via email, text message, or notification as you wait on our site. Ask follow up questions if you need to.
  • 100% Satisfaction Guarantee
    Rate the answer you receive.
Ask TonyTax Your Own Question
TonyTax
TonyTax, Tax Consultant
Category: Tax
Satisfied Customers: 15950
Experience:  Inc Tax, CGT, Corp Tax, IHT, VAT.
13905389
Type Your Tax Question Here...
TonyTax is online now

I am full time employed. I have received a profit from the

Resolved Question:

I am full time employed. I have received a profit from the sale of equipment purchased in 2011. This was done through an agreed 50/50 partnership with another individual. The equipment was something you would not use personally for your own daily gain similar to the purchase of a second home to rent out t others and hopefully sell one day at a profit. Can this be taken as a capital gain or should it be viewed as other income not self employed. Can the profit be split between myself and my wife as the original money used to buy the equipment was from our joint account and was paid back into a joint account.
Submitted: 1 year ago.
Category: Tax
Expert:  TonyTax replied 1 year ago.
Hi.
Can you tell me what you bought and what it was used for please.
Customer: replied 1 year ago.
It was an end of life Air defence system put up for sale by the MOD. We purchased it for scrap value of parts that can not be used again. the rest was held onto until we have made a sell to another user of the equipment.
Expert:  TonyTax replied 1 year ago.
Thanks.
Leave this with me while I draft my answer. It will take a while.
Expert:  TonyTax replied 1 year ago.
Hi again.
If you bought the equipment with a view to making a quick profit by selling it on, then HMRC would probably want to charge the profit to income tax and national insurance contributions, particularly as you had a partnership agreement in place, on the basis that you engaging in a trading activity. Income Tax is charged at 20%, 40% and 45% and Class 4 NIC is charged at 9% on profits in excess of £8,060.
Alternative, if you bought it and held on to it for some time which you did whilst seeking a buyer, I would be inclined to disclose the profit as a capital gain in which case the tax charge could not exceed 28%. CGT is charged at 18%, 28% or a combination of the two rates depending on the income level of the individual making the gain.
Take a look at the notes here for more information:
http://www.rossmartin.co.uk/starting-in-business-77750/332-is-it-a-trade-a-business
I hope this helps but let me know if you have any further questions.
Customer: replied 1 year ago.
Thank you for the information. Our approach was not to sell immediately or recognise any gain quickly. We knew it would or could take some time to even sell on the equipment. The first part that was sold was of no value and scrap only to any other organisation. I viewed it that the equipment was not useable by me directly and could only be sold on at some time, the work required to put into the sell approach is minimal as it is mainly just sat until a buyer could be found. Would I also be able to split the amount and have my wife claim half under her tax for capital gains?
Expert:  TonyTax replied 1 year ago.
You do that but HMRC may ask you to prove that your share was jointly owned with your wife. Then again, they might not and probably won't. What sort of figures are we talking about?
Customer: replied 1 year ago.
45k of profit. Original investment was 30k each and was recovered after about a year probably. Not much value in old useless equipment except scrap maybe.
Expert:  TonyTax replied 1 year ago.
If you and your wife each disclosed half your share of the gain, it would be incumbent on you to prove joint ownership if asked. Given the unusual nature of the asset, it might spark HMRC's interest so you would be taking a risk. However, I've seen stranger things bypass the HMRC sniffer dogs than this. It's down to chance I'm afraid.
Customer: replied 1 year ago.
Hopefully last question. Does it matter how the other party has put the whole sum of the profit through his company books. I am not an employee or was for that matter. He received the money through his business and I was paid after that. From your opinion, I would put it through on my taxes as capital gain and wait out the possibility of an audit. I would also only put it through my taxes to not involve or raise further interest. What is the penalty or fine if audited and they feel I was wrong in my argument and shoukd be income and taxed like that.
Expert:  TonyTax replied 1 year ago.
You should deal with it as you see fit regardless of how the other party deals with it. If you disclose it as a gain and HMRC successfully argue it was a trading profit, you would pay interest at 3% per annum on any extra tax due. Whether penalties would arise or not is debatable as how the profit should be disclosed is a matter of opinion and you aren't concealing anything. There are surcharges for late payment in addition to interest but if they were levied I would fight them. Take a look here for information on penalties.
Customer: replied 1 year ago.
Thank you very much. I had the same opinion but I am a US citizen and have to pay US tax also if not paid enough here. Thanks again.
Expert:  TonyTax replied 1 year ago.
Thanks.
TonyTax and other Tax Specialists are ready to help you