personaltax

I was highly amused to see in the news that the National Audit Office is facing a bill from HM Revenue and Customs for penalties and interest of some £8,000, in addition to tax of £98,000. This arises from the taxable benefit of a chauffer-driven car to take the former Comptroller and Auditor General, Sir John Bourn, to and from work. That will teach the NAO to qualify their audit report on HM Revenue and Customs’ 2007/08 accounts!

Employee’s travelling expenses can be a nightmare for employers. It is generally known that travel from your home to your work is not an allowable expense (though not, it appears, to the NAO), but the detailed rules are fiendishly complicated and almost every “Employer Compliance Review” conducted by HMRC turns up a few mistakes.

HMRC publish a book (the reference is 490) on the subject, which is more than 80 pages long, so it is quite a task to sum the rules up within the limits of this article, but let’s see how we get on. I recommend a cold towel round the head while you read this.

In order to understand the rules, we need to learn a new language. There are a number of terms used in the legislation that have special meanings, and are a rich source of confusion. As this may be your first exposure to this new language, we will concentrate on four key phrases: “Permanent Workplace”, “Temporary Workplace”, “Limited Duration”, and “Temporary Purpose”.

Permanent Workplace

The most confusing is “permanent workplace”. Travel from home to your “permanent workplace” is not an allowable expense. In the case of an employee who lives in town A and works every day at an office in Town B, this is fairly easy to cope with, but the problems start when an employee works in more than one place. I am not talking about someone such as a heating engineer who visits numerous customers during the day, but rather an employee who works (say) three days a week in one office, and two days a week in another office of the same employer. If he does this on a regular basis, then HMRC are likely to say that both offices are “permanent workplaces”, and so travel to either is not allowable.

Temporary Workplace

In order to get your travel expenses allowed, the travel must be to a “temporary workplace” - and yes, you’ve guessed it - this too has a special meaning. A “temporary workplace” is one to which an employee goes to “perform a task of limited duration or other temporary purpose”.

Limited Duration

“Limited duration” is the easiest to define - it means “less than 24 months”. If an employee who normally works in Town A is asked to work in Town B for 18 months, that will be a task of “limited duration” and his travelling costs from home to Town B will be allowable, provided he returns to working in Town A at the end of the 18 month period.

There is however a nasty catch here, and one which bedevils certain seasonal industries such as the hotel trade. If the employment concerned is a fixed term contract, even if it is for less than 24 months, then if all or most of the duties are to be performed in one place, that is a permanent workplace and the travel expenses are not allowable. To take a common example, hotels hire temporary staff for the holiday season, and (particularly those in remote locations) pay for their summer staff’s return tickets to the hotel. Those tickets are a taxable benefit because the hotel is not a “temporary workplace” for employees working there on fixed-term contracts.

The other aspect of “limited duration” which causes even more confusion is the so-called “40% rule”. If an employee spends 40% or more of his working time at a particular workplace, then that will be a “permanent workplace” (unless the period during which this situation occurs is less than 24 months, as explained above).

Temporary Purpose

“Temporary purpose” is even more obscure. As we have seen, if you go regularly to a second workplace, say every Friday, then even though you are spending less than 40% of your working time there, it may still be a “permanent workplace”.

The “get out of jail card” in this situation is that you attend the second workplace for a “temporary purpose”. HMRC’s guidance on the meaning of this expression says:

“Where a visit is self-contained (that is, arranged for a particular reason rather than as part of a series of visits to the same workplace for the continuation of a particular task) it is likely to be for a temporary purpose.” (Paragraph EIM32150 of their “Employment Income Manual”).

Like much HMRC guidance, that explanation sounds as though it means something until you try to apply it to the real world!  HMRC’s own examples of a “temporary purpose” include a Safety Officer who visits a particular factory once a month to carry out a safety check (but surely, he is “continuing” the task of ensuring the factory complies with the safety rules?), and a director who visits Farnham on the last Friday of each month to attend a board meeting (but again, is he not “continuing” the task of running the company?).

It is an uncomfortable sensation arguing against HMRC’s own examples of non-taxable expenses, and I will stop it immediately.  You may have a headache by now, but at least you can say you know more about travelling expenses than the National Audit Office apparently did!

James Bailey

Tax Insider is one of the leading Tax saving strategy websites available in the UK today. Dedicated to saving Business Tax, Property Tax, Personal Tax and VAT through a monthly tax e-zine, Members Area and a Branded Tax Newsletter with your own company logo. It gives away 8 special bonus reports with exclusive access to a members area packed with 100’s of legitimate tax busting articles, top tax tips in UK, customers Q&A’s. Plus an Accountants Help Desk, Tax Forum, Audio’s, Back Issues and much more!

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Everyone knows that you are exempt from CGT on the sale of your “only or main residence”, but like most tax reliefs this one is more complicated than it appears at first.

    The exemption covers the residence itself, together with the “garden or grounds” that go with it, up to the “permitted area”.

    The “permitted area” is half a hectare – about 1.2 acres – or any larger area which is “required for the reasonable enjoyment” of the house “having regard to the size and character of the dwelling-house”.

    As you would expect, HMRC take a lot of convincing that any “dwelling-house” needs more than half a hectare for the “reasonable enjoyment” of the property, and in any case where you declare (as you are required to do) that you have sold a main residence with a larger area of grounds, you are likely to have to persuade a sceptical tax inspector, and his crony the District Valuer, that the exemption applies.

    In my experience, HMRC will do their best to define the “permitted area” (even if they accept it should be larger than half a hectare) in such a way that the land outside the “permitted area” is the most valuable – perhaps because it includes outbuildings with development potential.

    If you find yourself involved in a dispute with HMRC about the extent of the main residence exemption, the first essential is to get professional advice. You are up against an expert (in the shape of the District Valuer), and one who will be believed over you if it comes to it, because he will have at his fingertips the records of recent sales of other properties in the area. Only a similar professional, such as a qualified valuer, will have access to similar statistics. Almost by definition, if you are having this argument, there will be a big capital gain at stake, so money for good professional advice is well spent. So, what are the themes on which the argument will centre?

Value:

    One strong point in your favour will be if you can show that the market value of the property would be reduced significantly, or better still, the property would become unmarketable, if all the land was not sold with the property. After all, if you would have difficulty in selling the property unless the appropriate amount of land went with it, that is a strong argument for saying that the prospective purchaser thinks that the land is “required for the reasonable enjoyment” of the property.

“Curtilage”

    If you think about the typical detached house, it will have a front and back garden, with walls or fences around them, and they are the “curtilage” (originally French for Courtyard) of the house.

    Go up a rung on the property ladder, and think about your typical Manor House. This will probably have a proper courtyard at the rear, with stables and other outbuildings, and it would be difficult for HMRC to argue that these did not form part of the “curtilage” of the property, because that is where the name comes from!

    The problem arises when the “curtilage” is not well defined by walls, but is a more diffuse area, perhaps with a swimming pool or a games room or granny cottage within it. This is where a good surveyor can come to your aid, to demonstrate that this area is all part of the “curtilage” of a property of this size.

Comparatives:

    This is where the District Valuer holds all the cards, unless you have a really good professional on your side. The DV will assert that numerous other houses in the area have been sold with less land, and that they were just as large as your house. Confidentiality will prevent him from going into details, of course, but a good surveyor will have other comparatives, in your favour, at his fingertips.

Paddocks:

    These tend to cause particular problems, because by their nature they will be fenced off from the main house. If you have stables (in use as such) within your curtilage, you can argue that the paddock is needed for the property to feed the horses, but if you have converted your stables to some other use, HMRC will jump in and say that the paddock is no longer “required”.

Sale of part of the land:

    If you sell part of the land while remaining in residence, then you are likely to have real trouble arguing that it was “required”. If the sold land and the retained land are all within half a hectare, you are safe, because the half hectare is yours by statute, but if the sold land was outside this magic area, you can expect HMRC to say that it was self-evidently not “required” because you have sold it!

James Bailey

http://www.taxinsider.co.uk/

TaxInsider is one of the leading Tax saving strategy websites available in the UK today. Dedicated to saving Business Tax, Property Tax, Personal Tax and VAT through a monthly tax e-zine, Members Area and a Branded Tax Newsletter with your own company logo. It gives away 8 special bonus reports with exclusive access to a members area packed with 100’s of legitimate tax busting articles, top tax tip, customers Q&A’s. Plus an Accountants Help Desk, Tax Forum, Audio’s, Back Issues and much more!!