2020 innovation monthly tax update webinar 14 september … · iht – additional nil band for the...

2020MonthlyTaxUpdateWebinar–September2015 Page1

2020 INNOVATION

Monthly Tax Update Webinar

14 September 2015

Martyn Ingles FCA CTA

Ingles Tax and Training Ltd

No responsibility for loss occasioned to any person acting or refraining from action as a result of the

material in these notes can be accepted by the author or 2020 Innovation Training Limited

2020 Innovation Training Limited ● 6110 Knights Court ● Solihull Parkway ● Birmingham Business Park ●

Birmingham ● B37 7WY

Tel. +44 (0) 121 314 2020 ● Fax +44 (0) 121 314 4718 ● Email: [email protected] ●


2020 – Monthly Tax Update Webinar – September 2015

Contents

1. RECENT LEGISLATION ................................................................................................. 3

1.1 Finance Bill ............................................................................................................... 3

2. IMPORTANT CONSULTATIONS – SUMMER 2015 ...................................................... 3

2.1 Tax Relief For Replacing Furniture In Let Properties .......................................... 3 2.1.1 Scope of the new replacement furniture relief ............................................. 4 2.1.2 Amount of the relief ........................................................................................ 4

2.2 Simplification of the Tax and NIC treatment of Termination Payments ............ 5 2.2.1 An new (lower?) exemption from tax and NICs ............................................ 6

2.3 Intermediaries Legislation (IR35) Discussion Document ................................... 7 2.4 Employment Intermediaries – Review of Relief for Travel and Subsistence .... 8

3. HMRC ANNOUNCEMENTS AND OTHER DEVELOPMENTS .................................... 11

3.1 HMRC Booklet 490 on Employee Travel Updated ................................................. 11 3.1.1 Temporary workplaces .................................................................................... 11 3.1.2 Fixed term appointments ................................................................................. 12 3.1.3 Employees who work from home .................................................................... 13 3.1.4 Agency workers ............................................................................................... 14 3.1.5 Journeys that are substantially private ............................................................ 14 3.1.6 Subsistence ..................................................................................................... 14 3.1.7 Incidental overnight expenses ......................................................................... 15

3.2 Advisory fuel rates increased on 1 September 2015 .............................................. 15 3.3 HMRC Guidance on 2016/17 Dividend allowance ................................................. 16 3.4 VAT on the new carrier bags charge in England .................................................... 16 3.5 HMRC targets hair and beauty sector in new NMW campaign .............................. 16

4. RECENT TAX AND TRIBUNAL CASES ....................................................................... 17

4.1 Transfer of Losses Together with Trade ........................................................... 17 4.2 Is Bridge a sport? ................................................................................................. 18 4.3 No AIA in period that trade ceases .................................................................... 19 4.4 Travelling Expense payments to Temps were earnings ................................... 19 4.5 No BPR for Holiday Lettings Business .............................................................. 19 4.6 Auf Wiedersehn Pet .............................................................................................. 20


2020 MONTHLY PRACTICAL TAX UPDATE WEBINAR – SEPTEMBER 2015 In this monthly webinar I will be drawing on the following source material for the content of these webinars:

Recent legislation Various HMRC and Treasury Consultations HMRC practice and guidelines Recent tax cases and Tribunal decisions

1. RECENT LEGISLATION

1.1 Finance Bill

Finance Bill 2015 which when enacted will be titled Finance (no. 2) Act 2015 was published on 14 July 2015 and comprises 50 clauses and 8 Schedules. The Bill introduces a number of the measures announced by the Chancellor in his Summer Budget on 8 July 2015, however it should be noted that many of his announcements are the subject of consultations being conducted during summer 2015 (see section 2)

Important measures included in the Finance Bill are as follows:

The income tax and VAT “lock”

Levels of personal allowance

The rate of corporation tax for 2017 through to 2020

AIA to be set at £200,000 from 1 January 2016

IHT – Additional nil band for the family home

Pensions annual allowance restriction for high earners

CT deduction for goodwill denied where acquired from 8 July 2015

Direct recovery of tax from taxpayers bank accounts

2. IMPORTANT CONSULTATIONS – SUMMER 2015

2.1 Tax Relief For Replacing Furniture In Let Properties

The government announced in the Summer Budget that from April 2016 the current 10% Wear and Tear Allowance for furnished lettings will be replaced with a relief that enables all landlords of residential dwelling houses to deduct the costs they actually incur on replacing furnishings in the property. This will give relief for capital expenditure to a wider range of property businesses as well as a more consistent and fairer way of calculating taxable profits. The proposals are being consulted on during summer 2015 and if enacted will give greater consistency and fairness across the residential property letting sector and reduce the


number of tax rules applying to the residential property sector. The proposals will apply from 6 April 2016 for income tax purposes and 1 April 2016 for corporation tax purposes. The new replacement furniture relief will only apply to the replacement of furnishings. The initial cost of furnishing a property would not be included. This will put the old concessionary basis that applied up until 5 April 2013 on a statutory footing, and is welcome news for those letting properties unfurnished and providing white goods, carpets and curtains, where relief had been withdrawn for a three year period. It is also good to see the government responding to lobbying from the accounting profession and letting sector to restore the tax relief.

2.1.1 Scope of the new replacement furniture relief

The relief will apply to landlords of unfurnished, part furnished and furnished properties. The relief will not apply to ‘furnished holiday letting’ businesses (FHLs) and letting of commercial properties, because these businesses receive relief through the Capital Allowances regime. Under the new replacement furniture relief landlords of all non-FHL residential dwelling houses will be able to claim a deduction for the capital cost of replacing furniture, furnishings, appliances and kitchenware provided for the tenant’s use in the dwelling house, such as:

movable furniture or furnishings, such as beds or suites, televisions, fridges and freezers, carpets and floor-coverings, curtains, linen, crockery or cutlery, beds and other furniture

HMRC believe that limiting the scope of the allowance to items that are provided for the tenant’s use in the dwelling house that is being let removes any opportunity to claim the cost of larger items used for the purpose of the property rental business, for example, cars. Fixtures integral to the building that are not normally removed by the owner if the property was sold would not be included because the replacement cost of these would, as now, be a deductible expense as a repair to the property itself. Fixtures include items such as:

baths, washbasins, toilets, boilers, fitted kitchen units

Landlords will no longer need to be concerned with whether the item being replaced is a fixture (and therefore a repair to the property) or not. In either case, the cost can be deducted from their rental income to arrive at the profits of their property rental business. Landlords will no longer need to decide whether their property is sufficiently furnished to claim the new replacement furniture relief, as they had to when claiming the Wear and Tear Allowance. This is because the new relief will apply to all landlords of residential dwelling houses, no matter what the level of furnishing.

2.1.2 Amount of the relief

The new replacement furniture relief will be for expenses that are actually incurred by landlords, rather than an arbitrary percentage. The value of the relief will no longer be dependent on the location that the property happens to be in and the local rates of rent. It will provide a better incentive for landlords to actually maintain the furnishings in their property. They will not be able to claim any relief without actual expenditure.


To ensure that the relief mirrors, as closely as possible, the landlord’s economic position, the new replacement furniture relief will give relief for the cost of the replacement asset, less any proceeds received from the old asset that is being replaced. In line with the policy that relief for the initial cost of assets will not be given, any element of the replacement asset that represents an improvement would be excluded from the new replacement furniture relief. The replacement will include an improvement if the new asset can do more or if it can be used to do something that it could not do before. For example, replacing a washing machine with a washer-dryer is an improvement. If the washer dryer cost £600, and the cost of buying a new washing machine like the old one would have been £400 then the replacement furniture relief will be £400 (£600 less the £200 that represents the difference in cost between a washing machine and the washer dryer).

2.2 Simplification of the Tax and NIC treatment of Termination Payments

The OTS carried out a review of Employee Benefits and Expenses, and published their findings and recommendations in reports in July 2013 and January and July 2014. In their final report in July 2014 the OTS published their conclusions following their review of termination payments.

They concluded that the system was fraught with confusion and uncertainty. They found that employers want to pay the correct amount of tax but the complexities of the system often prevent this from being achieved. The OTS concluded that above all employers want a system that is clear and easy to administer and employees want certainty about the amounts they will receive.

The OTS found cases where employees and employers had been asked to pay additional tax following departure from the employer; and cases where employers had deducted too much tax because they were unable to determine the correct tax treatment because of the complexity of the rules.

The OTS found that the confusion and complexity arises from:

the widespread but mistaken belief amongst employees and employers that the first £30,000 of any pay-off is not subject to income tax and NICs. This often leads to difficulties when employees discover that the exemption does not apply to their circumstances and that income tax and NICs are due on the full amount;

many employers being unclear about how the exemption operates. Much of the confusion arises from the lack of understanding by employers about the difference between contractual and non-contractual payments; and

employers and HMRC finding it difficult and time-consuming to establish the true nature of each separate element of a termination payment. They particularly highlighted the treatment of contractual payments in lieu of notice (PILON) and non-contractual payments in lieu of notice (auto-PILON) arrangements; and payments around retirement age.

The OTS also concluded that the current system is unfair because those who are better paid and better advised are often able to structure their affairs so that they benefit from the tax exemptions.

The government is considering how they can make the tax and National Insurance contributions (NICs) treatment of termination payments simpler and fairer and wants to hear views on how that can be achieved. The consultation particularly seeks views on:


removing the distinction between contractual and non-contractual termination payments and whether this will make it easier for employers and employees to understand

the design of the new exemption from income tax and NICs whether the income tax and National Insurance treatment of termination payments

should be aligned

To simplify the existing treatment the government agrees with the OTS that the first step is to remove the distinction between the tax and NICs treatment of contractual and non-contractual termination payments. This will remove the majority of the complexity and misunderstanding within the existing system.

Part of this change would be to treat all PILONs in the same way, as the government understands that there is widespread confusion over the treatment of these types of payments. As suggested by the OTS, by removing these distinctions the government intends that all payments made in connection with termination of an employment will be earnings and subject to income tax and employer and employee NICs. This will mean that employers will no longer need to consider which parts of a termination payment are taxable and which parts are not.

2.2.1 An new (lower?) exemption from tax and NICs

The government believes that there is a principled case for providing support in the form of tax and NICs relief when someone loses their job. This is because removing the exemption would have a significant cost impact for some people, especially those who receive smaller termination payments. Therefore the government intends to introduce a new exemption from income tax and NICs. The OTS suggested a blanket income tax exemption for all payments on termination but acknowledged that this would not be affordable at the existing £30,000 exemption. Their proposition was that the exemption would apply to all termination payments without the employer needing to consider each element of the payment separately. This would mean that the employee would only be subject to income tax (and possibly NICs) to the extent that their termination payment exceeded a set amount, which would be lower than the current £30,000 exemption. This would apply regardless of the time that the employee had worked for their employer or the reason that their employment had been terminated. In contrast the rules for statutory redundancy require two years of service before an employee is eligible to receive it. The OTS also suggested that a new exemption could be linked to statutory redundancy pay. They suggested that the exemption would be a multiple of the employee’s statutory redundancy payment. The OTS concluded that this would have in-built anti-avoidance rules as only those who are being made redundant are able to claim statutory redundancy. However, as identified by the OTS, there are a number of people who would not be able to qualify for statutory redundancy. These include, employee shareholders, parliamentary staff, civil servants and those employed in public office. There is no reason why these employees should not be treated in the same way as all other employees. One approach the government is considering is to create a new exemption which increases proportionately with the number of years of service the employee has completed. This would create a new fairer exemption which will proportionately reward long serving, lower


paid employees. Linking the availability of relief to the length of service of the employee would create a simple system that is easy to understand and easy for employers to administer. The employee would qualify for the exemption once they have completed two years of service. This would mean that anyone who receives a termination payment after completing two years of service would not have to pay tax and NICs on some, or possibly all, of their award (depending on the size of their award). The level of the tax and NICs exemption would then increase at a set rate with each year of service completed up to a maximum amount. The government is also considering only providing tax and NICs relief where the termination payment has been made in connection with a redundancy as defined in section 139 of the Employment Rights Act 1996. This would mean that only those payments made where the termination of the employment is wholly or mainly attributable to:

the employer ceasing, or intending to cease, to carry on the business for the purposes of which the employee was employed;

the employer ceasing or intending to cease to carry on that business in the place the employee was employed;

the requirement for the employee to carry out work of a particular kind of work has ceased or diminished or is expected to cease or diminish; or

the requirement to carry out work of that particular kind in the place where that employee was employed has ceased or diminished or is expected to cease or diminish.

This definition would also include voluntary redundancy. The government understands that businesses often prefer to offer redundancy on these terms and the consequence of them not being accepted is often compulsory redundancy. Therefore if this proposal was legislated the government would not differentiate between compulsory and voluntary redundancy for the termination payments tax and NICs exemption.

2.3 Intermediaries Legislation (IR35) Discussion Document

In the Summer 2015 Budget the government announced that HMRC would start a dialogue with business on how to improve the effectiveness of the existing intermediaries legislation. HMRC will engage with stakeholders over the next few months to explore options to make the legislation more effective in protecting the Exchequer and levelling the playing field between direct employees and those who work in a similar manner to direct employees but through their own limited companies. HMRC and the Government issued a Discussion Document on 17 July 2015 which seeks to make the existing rules more effective. They have identified that there is a growing body of evidence which suggests there is significant noncompliance with the current rules.

The number of people paying tax under IR35 has remained fairly static since it was first introduced. However, there has been a substantial increase in the number of PSCs during the same period. The government estimates that there were around 265,000 PSCs in 2012/13, an increase of 65,000 on the previous year alone. This number is expected to continue to increase.

Whilst many PSCs would not fall within the legislation because the worker would properly be regarded as self-employed, the government would still expect to see a larger increase in the number of people paying tax and NICs under IR35. In 2011/12 around 10,000 people paid tax under IR35, an estimated 10% of those who should have paid tax on at least part of the income their PSC receives under the legislation.


The Office of Tax Simplification’s (OTS) review of IR35 as part of its review of Small Business Taxation published in March 2011 noted that the legislation is “little used”, adding to the evidence that only a small number of PSCs are complying with the current rules. In response to the OTS’ recommendations, the then Government asked HMRC to undertake a thorough overhaul of the administration of IR35. This work included improving its compliance approach to IR35. HMRC has recently strengthened its specialist compliance teams and increased the number of enquiries where IR35 is the main risk tenfold, and clarified the application of the rules to officeholders.

HMRC take a risk based approach to identify non-compliant cases so activity is targeted in the most cost effective way, concentrating on the high risk cases. However, carrying out IR35 interventions can be complex and time consuming.

In April 2014, the House of Lords Select Committee on Personal Service Companies published their report which also expressed concerns about non-compliance with the rules. The report highlighted the industry which has grown up advising companies on how to ensure their contracts fall outside of the legislation and concluded that ‘many individuals simply take a risk that HMRC will not look into their employment status.’

Increasing HMRC’s compliance response alone is not sufficient to tackle the size of the problem.

Non-compliance with the IR35 anti-avoidance legislation is both unfair and costs the Exchequer a significant amount of revenue each year. The government estimates that noncompliance with the legislation will cost the Exchequer £430m in tax and NICs receipts this year and, without reform, it expects this loss to continue to grow.

One option which could meet the objectives for reform, and specifically tackle the challenges in enforcing compliance would be for engagers to take on more of a role in ensuring that the right amount of employment taxes are paid. As now, the objective would be to ensure that where a worker would have been an employee if engaged directly, then the tax consequences would follow that.

Under such an arrangement, those who engage a worker through a PSC would need to consider whether or not IR35 applies (in the same way as they would need to consider whether a worker should be self-employed or actually be an employee), and, if so, deduct the correct amounts of income tax and NICs as they would for direct employees. However, the government recognises that this would increase the burden on engagers and would welcome views on this potential option, including how it could be made as straightforward as possible for engagers to determine whether IR35 should apply as part of their routine hiring conversations.

2.4 Employment Intermediaries – Review of Relief for Travel and Subsistence

Following the Office of Tax Simplification’s report into travel and subsistence, the government is undertaking a review of the tax rules for travel and subsistence expenses with a view to modernising these rules to reflect current practices. This is a wide ranging review looking at the rules as a whole; any changes will take some time before being introduced. The government believes that the rules for tax relief on travel and subsistence expenses for those working through employment intermediaries need to be updated in a much shorter timeframe as such workers are perceived to have a more favourable tax treatment than their direct employee counterparts.


Tax and NICs relief on travel and subsistence payments for employees, is generally only available for travel in the performance of a worker’s duties (such as the travel undertaken by a travelling salesperson or travel between two places of work), or for travel between a worker’s home and a ‘temporary workplace.’ There is no tax relief, for ordinary commuting - travel between home (or a place that is not a workplace) and a ‘permanent workplace’. There are a number of criteria for determining whether a workplace is temporary or permanent, but in general a workplace will always be a permanent workplace if the worker:

Goes to the same workplace in the course of a period of continuous work which lasts, or is likely to last, for more than 24 months; or,

Goes to the same workplace for all or almost all of the time for which the worker is likely to hold, or continues to hold, the same employment. This will normally be the case if the worker is employed to work at one place on a fixed term contract, for example.

In certain circumstances the use of an employment intermediary can result in workers being eligible for relief on their home to work travel and subsistence expenses; in particular, when intermediaries such as employment businesses or umbrella companies use overarching contracts of employment (OACs). These allow a worker to be employed by an employment intermediary on a single set of terms and conditions, whilst they work in multiple locations for different engagers. The umbrella company, or employment business, is the employer of the worker who is treated as if they are in a single continuing employment, rather than a series of separate engagements. The workplaces they attend will often be temporary workplaces provided the worker expects to work there for less than 24 months. Workers and contractors employed in this way, are eligible to claim tax relief on their home -to -work travel and subsistence expenses. So, even where they are performing the same duties as an employee of the engager, a worker employed through an intermediary will be eligible for tax relief on travel and subsistence that a direct employee cannot access. Employment through PSCs may also permit the claiming of tax relief on travel and subsistence costs between home and work, as the worker is either a director of the company, or employed by it (often both) and the PSC acts as an intermediary between the worker and the engager. Again, this will mean that the workplaces that the worker attends can often be treated as temporary workplaces, even when each workplace is attended regularly for the majority of the contract period. This allows tax relief to be applied to payments made to the worker for home-to-work travel and subsistence. The government is proposing to remove tax relief for ordinary commuting (in general, home-to-work travel and subsistence expenses) for workers who are:

supplying personal services, engaged through an employment intermediary (including umbrella companies, certain

employment businesses and personal service companies); and, subject to (or to the right of ) the supervision, direction or control of any person.

The effect of this will be that individuals whose relationship with their engager is such that they look and act like employees, cannot claim relief on the everyday cost of travelling to work, when employed through an intermediary. This will ensure a level playing field for access to tax relief for travel and subsistence.


HMRC consider the definition of the terms supervision, direction and control as follows: Supervision is someone overseeing a person doing work, to ensure that person is doing the work they are required to do and it is being done correctly to the required standard. Supervision can also involve helping the person where appropriate in order to develop their skills and knowledge. Direction is someone making a person do his/her work in a certain way by proving them with instructions, guidance, or advice as to how the work must be done. Someone providing direction will often co-ordinate how the work is done, as it is being undertaken. Control is someone dictating what work a person does and how they go about doing that work. Control also includes someone having the power to move the person from one job to another. To determine whether supervision, direction or control applies HMRC will consider the worker’s arrangements overall . This will include the terms of the engagement and the way the work is actually done in practice . It will not be enough that the terms of the contract imply a lack of supervision, direction or control ,but in reality the worker is supervised. HMRC Example 1 – Working through an employment intermediary following the proposed changes An independent retailer requires their own website to market and sell their products online. The proprietor contracts with an employment agency to supply them with an IT consultant to design, build and release the website on-line. An IT consultant is sent along to meet the proprietor, who explains their requirements. Having no expertise in IT, the proprietor gives the IT consultant photographs of the product range and the price list and tells the IT consultant they have a free reign to undertake the work as they choose. The IT consultant works at the retailer’s premises during the engagement and completes the job after which the engagement ceases. In this example, the proprietor had no right of supervision, direction or control over the manner in which the IT consultant provided their services. As such, the IT consultant is able to claim tax free travel and subsistence expenses for their travelling between home and the retailer’s premises and for lunch costs, regardless of whether they work through an Employment Intermediary, including a PSC or an Umbrella Company. HMRC Example 2 – Working through an employment intermediary following the proposed changes A local authority need an IT consultant to provide 4 months cover for a permanent employee who is on maternity leave. The local authority contract with an employment agency to send along an IT consultant to provide the cover. The job entails the IT consultant working within the local authorities own IT department along side permanent employees, undertaking the same duties. Throughout the engagement the manager of the IT Department assigns the work to the IT consultant and gives instructions as to how that work must be done. The IT manager monitors the IT consultant’s work, as they do with the permanent employees work. In this example the IT manager had a right to supervise, direct and control the manner in which the IT consultant provided their services and that right was exercised. Therefore, the IT consultant is not able to claim tax free travel and subsistence expenses for travel between home and the local authority’s premises and lunch costs.


The local authority’s premises is regarded as the IT consultant’s permanent workplace for the duration of the engagement. The government plans to introduce new legislation in the Finance Bill 2016, with the intention that any changes to the travel and subsistence regime will come into force from 6 April 2016. Changes to the rules in relation to NICs will also be made to ensure that that NICs position continues to mirror the tax treatment from 6 April 2016.

3. HMRC ANNOUNCEMENTS AND OTHER DEVELOPMENTS

3.1 HMRC Booklet 490 on Employee Travel Updated

HMRC have recently updated booklet 490 which sets out their guidance to employers on the tax treatment of travelling expenses paid on behalf or reimbursed to directors and employees. The booklet includes numerous examples to illustrate the application of the rules. The following is a summary of the key areas covered in the updated booklet. Note that there is no relief for the costs of “ordinary commuting” where the employee is travelling to a permanent workplace. However, relief is available for the costs of travelling to a temporary workplace where that is necessary in the performance of the duties of that person’s employment. Note also that in the journey qualifies for tax relief then so too does any reasonable subsistence such as meals and overnight expenses in connection with that business journey. A place is a permanent workplace if the employee attends it regularly for the performance of the duties of the employment and it is not a temporary workplace. A temporary workplace is somewhere the employee goes only to perform a task of limited duration or for a temporary purpose. The following example explains this distinction: Belinda is a purchaser for a major retailing company. Although she has a permanent workplace in Doncaster, she has to spend several days each month visiting suppliers all over the country, often travelling directly to and from home. Tax relief is available for the full cost of her business travel to suppliers, but not for her travel to her permanent workplace in Doncaster because that is ordinary commuting.

3.1.1 Temporary workplaces

A place is a temporary workplace if an employee goes there only to perform a task of limited duration or for a temporary purpose even where the employee attends it regularly. Where an employee attends a workplace for a limited period of time to do a particular task or project then the workplace will be a temporary workplace, even where the employee’s attendance is regular. This is on the basis that they are attending for the purpose of performing a task of limited duration. The 24-month rule prevents a workplace being a temporary workplace where an employee attends it in the course of a period of continuous work which lasts, or is likely to last, more than 24 months. A period of continuous work is a period of work throughout which the duties of the employment are performed to a significant extent at that place. For the purposes of


operating this rule, HMRC regard duties as performed to a significant extent at any workplace if an employee spends 40% or more of their working time at that place. This means that where the employee has spent, or is likely to spend, 40% or more of their working time at that particular workplace over a period of more than 24 months, it will be a permanent workplace. Example Chris has worked for 5 years at her employer’s head office in Warrington. She is sent by her employer to perform duties at a branch office in Wigan for 18 months, after which she expects to return to work in Warrington. As Chris’ attendance at the temporary workplace in Wigan is expected to last less than 24 months, tax relief is available for the full cost of her travel between home and the temporary workplace. Where it is expected that the employee will attend a workplace to perform a task of limited duration or for some other temporary purpose for a period of less than 24 months, the workplace will be a temporary workplace from the outset. However, if at a later date circumstances change and the employee is required to attend the workplace for a period that extends beyond 24 months, it will cease being a temporary workplace from the date that the expectation changed. Example Richard has worked for his employer for 3 years. He is sent to perform full-time duties at a workplace for 18 months. After 10 months the posting is extended to 28 months. Tax relief is available for the full cost of travel to and from the workplace during the first 10 months (while his attendance is expected to be for less than 24 months), but not after that (once his attendance is expected to exceed 24 months). For the 24-month rule to apply, both legs of the test must be met; for a workplace to be deemed permanent, the employee must have spent or be likely to spend more than 40% of their working time at a workplace and they must attend it or be likely to attend it over a period lasting more than 24 months. Example Edward lives and works in Portsmouth where he is employed as an engineer. His employer sends him to work in Southampton for 11⁄2 days a week for 28 months. For the rest of the week he continues to work in Portsmouth which remains a permanent workplace. In considering whether Edward is entitled to tax relief for travel between home and Southampton it is important to look at the amount of time he expects to spend there each week and for how long he expects to be in Southampton. Because he expects to be in Southampton, for less than 40% of his working time, albeit over a period longer than 24 months, and he retains a permanent workplace in Portsmouth, Southampton is a temporary workplace for Edward and he is entitled to tax relief for the cost of getting there and back.

3.1.2 Fixed term appointments

The fixed-term appointment rule prevents a workplace being a temporary workplace where an employee attends, or is likely to attend, it in the course of a period of continuous work for all or almost all of the period that they are likely to hold the employment. A period of continuous work for this purpose has the same meaning as it does for the 24-month rule - that is it is a period during which the employee spends or is likely to spend more than 40% of their working time at a particular workplace.


For the purpose of operating the fixed-term appointment rule HMRC regard a period as being all or almost all of the period that the employee is likely to hold the employment where that period is more than 80% of the likely duration of the employment. This means that the test is whether the employee has spent, or is likely to spend, 40% or more of their working time at that particular workplace for more than 80% of the likely duration of the employment. The fixed-term appointment rule will also apply where an employee’s duties are defined by reference to a geographical area. Example Laura is employed as a research scientist on a fixed-term contract lasting 15 months. Most of her work is to be done in research laboratories in Upminster but to familiarise her with equipment which is new to her, her employer first sends her to the manufacturer’s premises in Inverness. Laura is entitled to tax relief for her travel to and from Inverness, but not for her travel from home to and from Upminster because it is the place where she will carry out duties for almost all of her employment.

3.1.3 Employees who work from home

Whether or not an employee’s home is a workplace does not affect the availability of tax relief for travel expenses. Travel expenses from home to a permanent workplace will only qualify for tax relief if the journey qualifies as travel in the performance of the duties of the employment. So even though it may have been accepted that the employee’s home is a workplace, it does not necessarily follow that they will be entitled to tax relief for the cost of travel between their home and a permanent workplace. This is because the place where an employee lives will ordinarily be down to their personal choice. The expense of travelling from their home to any other place is a consequence of that personal choice; not an objective requirement of the job. Where an employee performs substantive duties of their employment at home as an objective requirement of the job, HMRC may accept their home as a workplace for the purposes of the ‘travelling in the performance of the duties’ rule. Where this is the case the employee will be entitled to tax relief for the expenses of travelling from home to other workplaces as their travel is in the performance of their duties. Usually, HMRC will only accept that working at home is an objective requirement of the job if the employee requires certain facilities to perform those duties, and those facilities are only practically available to the employee at their home. HMRC won’t accept that working at home is an objective requirement of the job if the employer provides appropriate facilities in another location that could be practically used by the employee, or the employee works from home as a matter of choice. Example Angela is an area sales manager who lives in Glasgow. She manages the company’s regional sales team across Scotland. As the company’s nearest office is in Newcastle Angela cannot practically attend that office and is required to carry out her administrative work at home. Angela’s employer requires her to keep all client information securely at home, and so Angela could not carry out that administrative work anywhere else. Angela is entitled to tax relief for the expenses she incurs in travelling from her home to the company’s office in Newcastle, as well as for her journeys within Scotland.


3.1.4 Agency workers

Where a worker provides their services through an agency and their income is subject to tax as employment income, and they generally attend only one workplace in respect of each engagement that workplace will usually be a permanent workplace. Where nurses, domestic workers and others provide their services through an agency and do a number of different jobs on the same day, those workers may obtain tax relief for travel between those jobs, but not for travel from home to the first job and to home from the last job on each day. Example Beth is an accounts clerk who gets all her work through an employment agency. She rarely takes a job which lasts more than 2 weeks. Beth always travels straight from home to work at the premises of the employment agency’s client. She is not entitled to tax relief for any of these journeys because each job is treated as a separate employment and so all her journeys are ordinary commuting.

3.1.5 Journeys that are substantially private

Tax relief is denied for journeys which are substantially private travel. This means journeys where the business purpose of a journey is merely incidental to some private purpose or the journey is made substantially for private purposes rather than for business purposes. Example Paul is a manager of a bank in Swindon. One day he travels to Basingstoke to visit his elderly mother but while there calls in at the branch of the bank in Basingstoke to drop off some papers. His purpose in going to Basingstoke was private so he is denied tax relief because his journey was substantially private travel. Contrast with: Example Andrea works for an accountancy firm in Northampton. Her employer sends her to the Coventry branch to attend a training event. Andrea’s sister lives in Coventry and while there she visits her sister. She spends a lot longer visiting her sister than she does at the training event, however, she is entitled to tax relief for her travel from home to Coventry because her primary purpose in going there was business. Meeting up with her sister was merely incidental to her business travel.

3.1.6 Subsistence

Travel expenses includes both the actual costs of travel together with any subsistence expenditure and other associated costs that are incurred in making the journey. This includes:

• any necessary subsistence costs incurred in the course of the journey • the cost of meals necessarily purchased whilst an employee is at a temporary

workplace • the cost of the accommodation and any necessary meals where an overnight stay is

needed - this will be the case even where the employee stays away for some time Example Chris is required to spend 3 months in 2013/14 working at the site of one of his employer’s clients. He travels to the site each Monday morning, stays in a hotel close to the temporary workplace and travels home late each Friday evening, eating dinner on the way. During the week he takes some of his meals in the hotel and others at a nearby restaurant. The cost of the accommodation and all the meals are part of the cost of his business travel.


However if he were to travel home on a Wednesday evening, spend the night at home and take his wife out for a meal no deduction would be permitted for the cost of that meal. This is because the qualifying business journey ends when he arrives home and starts on Thursday morning when he sets off to travel back to the site. Example Michael is employed as a travelling salesman visiting customers across the UK throughout the day. He travels to his first customer direct from home and travels home directly from his last customer of the day. Each day he purchases and eats lunch whilst travelling between customers. Michael is travelling in the performance of his duties. Therefore the costs of his travel both to and from home and between customers together with the cost of his meals incurred whilst en route will be allowable. But no relief if you make your own sandwiches: Example Andrew normally works in Bristol, but his employer asks him to spend a few days covering for a colleague in the Bath office. The Bath office will be a temporary workplace. As he normally prepares a packed lunch at home, Andrew continues to do so for the days he is travelling to work in Bath. No tax relief is available for the cost of Andrew’s lunches (even if they could be precisely identified) as he did not incur the cost in the course of his journey.

3.1.7 Incidental overnight expenses

An employee making a business trip may spend money on items such as private phone calls, laundry and newspapers. These are not ‘travel expenses’ – they are personal expenses incurred while travelling. An employee is not entitled to tax relief for personal expenses of this kind under the normal travel rules. But there is a separate rule which gives tax relief for these expenses in certain circumstances. Employees are entitled to tax relief for these expenses if the employer pays or reimburses no more than:

• £5 for every night spent away on business in the UK • £10 for every night spent away on business outside the UK

3.2 Advisory fuel rates increased on 1 September 2015

HMRC now review their advisory fuel rates every 3 months and have published figures which will apply to all journeys from 1 September 2015 until further notice (figures for previous quarter in brackets where there has been a change):

Engine size Petrol Diesel LPG

1400cc or less

1600cc or less

11p (12p)

9p (10p)

7p (8p)

1401cc to 2000cc

1601cc to 2000cc

14p

11p (12p)

9p

Over 2000cc 21p 13p (14p) 14p

Petrol hybrid cars are treated as petrol cars for this purpose.


Company car drivers should consider whether it is beneficial to have private petrol and diesel provided by their employer or reimburse private usage at the above rates to avoid a taxable benefit arising.

3.3 HMRC Guidance on 2016/17 Dividend allowance

HMRC have published a factsheet setting out how the new £5,000 tax-free dividend allowance will operate from 6 April 2016. In essence, the new allowance will mean that the first £5,000 of dividend income will be free of tax, with the excess taxed at new dividend income tax rates for basic rate, higher rate and additional rate dividend income. The guidance includes a number of worked examples. Example 6 shows how the allowance will apply where dividend income falls into both the basic rate and higher rate bands: “I have a non-dividend income of £40,000, and receive dividends of £9,000 outside of an ISA” Of the £40,000 non-dividend income, £11,000 is covered by the Personal Allowance, leaving £29,000 to be taxed at basic rate. This leaves £3,000 of income that can be earned within the basic rate limit before the higher rate threshold is crossed. The Dividend Allowance covers this £3,000 first, leaving £2,000 of Allowance to use in the higher rate band. All of this £5,000 dividend income is therefore covered by the Allowance and is not subject to tax. The remaining £4,000 of dividends are all taxed at higher rate (32.5%).

3.4 VAT on the new carrier bags charge in England

The new charge on single-use carrier bags in England will come into effect on 5 October 2015. It applies to single-use carrier bags provided with goods supplied from companies with more than 250 full-time equivalent employees. HMRC Brief 14/2015: VAT – compulsory charge on single-use carrier bags in England confirms that the charge for a bag (minimum 5p) will be inclusive of VAT. For Corporation Tax and Income Tax, receipts from the compulsory charge on single-use carrier bags should be brought into account in calculating trading profits. The government expects the proceeds to fund good causes in England.

3.5 HMRC targets hair and beauty sector in new NMW campaign

HMRC is making the hair and beauty sector a particular focus of its new National Minimum Wage campaign, under which employers are encouraged voluntarily to disclose and settle arrears of the national minimum wage owed to employees. Employers in the hairdressing and beauty sectors who pay their staff below the national minimum wage (NMW) are being targeted in a new campaign announced today. As part of this campaign, the first of its kind, HM Revenue and Customs (HMRC) and the Department for Business, Innovation and Skills (BIS), supported by the National Hairdressers' Federation and the Hair and Beauty Industry Authority, will work with hair and beauty businesses to help them understand their pay obligations to their employees. HMRC will provide employers with tailored tools and guidance to check if they are paying the correct amount, and put it right where they are not. Employers who take this opportunity to


self-correct will not have to pay penalties, nor will they be “named and shamed”. If employers choose not to comply with their NMW obligations, HMRC will take action to ensure that employees are paid what they are owed. BIS analysis shows that 42% of businesses in the sector do not pay level 2 and level 3 apprentices the correct minimum wage – the highest underpayment rate of any sector. Those paying under the minimum wage now have a chance to put things right. If they fail to do so it could result in their business being publicly “named and shamed” and facing a fine of up to £20,000 per employee. This new campaign is the first step in expanding HMRC's compliance activities using smart data. The government, in the Summer Budget, announced extra funding to expand HMRC's data analytics and enforcement teams. Hair and beauty businesses are being asked to come forward as part of the National Minimum Wage Campaign by:

Telling HMRC they want to take part in the campaign

Disclosing details of arrears now paid to their workers and confirming that wages worth at least the NMW are now paid to all workers

4. RECENT TAX AND TRIBUNAL CASES

4.1 Transfer of Losses Together with Trade Leekes Ltd v HMRC [2015]

UKFTT 93 Section 343 ICTA (now s940 CTA 2010) provides that where there is the transfer of a trade without a change of ownership between two companies then the trade is treated as not having been discontinued such that any unrelieved trading losses may be carried forward and utilised by the successor company. The relief applies where there is 75% common ownership of the trade transferred at some time in the one year before and two years after the transfer.

On 18 November 2009 the Leekes Ltd (L) , which owned and ran four department stores, acquired the entire share cabpital of another company (C) and its three stores. In the eight months of trading prior to sale, C had a turnover of £12·7m and its trading loss for the period was £950,321. It had trading losses carried forward of £2,262,120. All three C stores were rebranded as L’s stores selling its products but they sustained an aggregate trading loss of £176,258 for the accounting period ending 31 March 2010 according to the accounts.

In its corporation tax return for the year ended 31 March 2010 L stated that it had succeeded to the C trade and had losses available for offset under s343 (company reconstructions without a change of ownership) of £3,167,441 of which £1,655,756 were offset in the current period. HMRC disallowed the losses claimed.

On appeal to the First-tier Tribunal the issue arose as to whether the losses made by C prior to succession were available to L under s343(3) or whether they could only be used against profits of the C trade post-succession. There was no dispute that the other technical criteria for a succession, as set out in s 343, were satisfied. L accepted that there were two hypothesises underlying the application of s343(3) - the first (“the trade hypothesis”), that the successor should be treated as having incurred the losses in question “as for a loss sustained by it in carrying on the trade”; and, the second (“the quantum hypothesis”), the reference to “any amount for which the predecessor would have been entitled to relief”. It


submitted (i) the trade hypothesis conferred on the successor company an entitlement to losses equivalent to that available as if it had carried on the predecessor's trade itself; and (ii) the quantum hypothesis only took account of the quantum of the losses available and did not extend to considering what, if any, profit the predecessor might have had against which those losses could be utilised. The “relief” available, via s393, was relief against the profits of the new trade; it was not measured or capped by the profits of the predecessor's trade.

HMRC argued (i) the trade hypothesis referred to “a trade”- that trade being the trade of C -and therefore in determining what losses were available to be taken over by the successor company, only the losses which would have been available to C as a “relief” under s 393 in its trade had the succession not occurred were taken account of, and “the trade” referred to twice in the final phrase of s 393(3) could only be “the trade” of C.

The Tribunal’s interpretation of s343, on the premise that a succession had occurred, was that all the losses of the predecessor's trade which had been subsumed with the successor's trade should be available for offset against the combined profits of the successor company. There was nothing in the statutory wording which gave any clear guidance either way as to how the legislation was intended to work if the successor had an existing trade to which the original trade was added. L’s interpretation of s 343(4) was to be preferred to that of HMRC because (i) it recognised that there was no explicit reference to a requirement to stream losses in s 343(1) and (3); (ii) it avoided the extensive deeming and practical difficulties of application which were the unavoidable result of HMRC's approach; and (iii) it provided an approach to the legislation which was more closely aligned to commercial reality. It followed that L’s appeal would be allowed.

4.2 Is Bridge a sport? English Bridge Union Ltd v

HMRC [2015] UKUTT

The taxpayer company (EBU) is the national body for duplicate bridge in England. It organises bridge tournaments and charges players an entry fee. The principal question before the Tribunal was whether duplicate bridge was a sport so that the entry fees would be exempt from VAT. The First-tier Tribunal had accepted HMRC's contention that it was not a sport and so the taxpayer company appealed.

The EBU contended that playing bridge involved the use of high level mental skills: logic, lateral thinking, planning, memory, sequencing and others. Playing bridge regularly promoted both mental and physical health and studies had shown that it could benefit the immune system and reduce the chance of developing Alzheimer's disease and of mental deterioration. The Charity Commission considered that bridge fell within the definition of “sport” in s2(3) (d) of the Charities Act 2006: “sports or games which promote health by involving physical or mental skill or exertion”.

The Upper Tribunal held that, on the key question of law as to whether duplicate bridge was a sport, it “could not with complete confidence resolve the issue” and so would refer the question to the ECJ. That question would include requesting guidance on whether “sport” would require a significant physical element, material to its performance or outcome, or whether a game with a “predominantly mental element of performance and outcome” would fall within the definition.


4.3 No AIA in period that trade ceases Keyl v HMRC [2015]

UKUTT The taxpayer Mr Keyl carried on business as a sole trader installing, maintaining and repairing air conditioning systems. He incorporated a company and transferred his business, and all the assets required to carry on the business, to it in March 2009. He had purchased a new van for use in the business in July 2008. The taxpayer contended that he was entitled to the annual investment allowance for the year ending on 31 March 2009. Under CAA2001 s38A capital allowances are not available if “the expenditure is incurred in the chargeable period in which the qualifying activity is permanently discontinued”. The key issue was therefore whether the taxpayer had permanently discontinued his trade in the tax year ended 31 March 2009. The Upper Tribunal held that discontinuance of a trade at the end of a chargeable period was a discontinuance in that chargeable period and dismissed the appeal.

4.4 Travelling Expense payments to Temps were earnings Reed Employment v HMRC

[2015] EWCA 805 The Court of Appeal has upheld decisions by the Upper Tribunal and FTT that travel expenses paid by Reed Employment to temporary workers placed with clients were subject to tax and NICs as employment income. The tax at stake as the result of this decision is estimated at £158 million. Reed aimed to make non-taxable payments to its employed temps by way of salary sacrifice for travel expenses with tax and National Insurance Contributions (NICs) savings being shared between Reed and the employed temp. The Court of Appeal agreed with HMRC's argument that the payments were made as part of overall wages and, as a result, should have been subject to PAYE and NICs. The Court dismissed Reed's appeal and awarded HMRC costs. The appeal followed the Upper Tribunal decision in April 2014.

4.5 No BPR for Holiday Lettings Business Green v HMRC [2015]

UKFTT Mrs Green ran a business letting short-term self-contained holiday accommodation in a property in Norfolk. She took short-term bookings via the business website, correspondence and telephone, and marketed the business via brochures and website. The price the guests paid for the property included the use of linen, towels, electricity, various kitchen equipment, other household furniture and wifi. Guests were expected to do their own laundry and cooking, clean the accommodation before departure, change lightbulbs etc if required, and set the heating thermostat. They were provided with a welcome pack on arrival, the accommodation was cleaned between bookings and a caretaker was available for emergencies. Mrs Green paid for repairs and maintenance, the property was liable for business rates and the business paid an accountant and a secretary. On 5 April 2010 she settled 23% of the property into a trust, and filed an inheritance tax account form (IHT1000) stating that she had made a chargeable transfer, consisting of an interest in a business, and claiming business


property relief (“BPR”) at 100%. On 2 April 2012 she transferred a further 62% of the property to the trust. In September 2012 a further IHT1000 was filed, again claiming BPR at 100%. The parties agreed that the value transferred by the first transfer was £583,300 and a value of £1,060,200 by the second transfer. HMRC accepted the appellant was carrying on a business, but decided the transfers did not qualify for BPR because the business consisted “mainly” of “making or holding of investments”. The appellant appealed to the First-tier Tribunal. On the facts the business consisted “mainly” of “making or holding investments”, for the purposes of IHTA 1984 s105. The following activities fell on the investment side of the line: marketing, pricing, booking accommodation, dealing with complaints and requests, insurance, repairs and maintenance. By analogy with those activities, business rates were also part of the costs of managing the investment. On the non-investment side were: electricity, the welcome pack, the provision of linen, towels, furniture, equipment and wifi, as well as cleaning. That analysis indicated that the extra services provided were both relatively minor and ancillary to the provision of accommodation. That conclusion was confirmed when the accounts were considered. Cleaning, light, heating, depreciation of furniture represented “additional services” while bank interest/charges, repairs, insurance, advertising, secretarial services, postage, business rates and the depreciation of the property and its fittings were all part of the “management” of the property. The extra services provided were insufficient to demonstrate that the business was other than “mainly” one of holding the property as an investment. The appeal would be dismissed.

4.6 Auf Wiedersehn Pet Healy v HMRC [2015]

UKUTT The actor Tim Healey has lost his appeal to the Upper Tribunal concerning the deductibility of costs of accommodation whilst performing in a play in London away from his home in Cheshire. The facts of the case are that whilst performing in the play he rented a three bedroomed flat just over a mile from the theatre. He claimed a deduction of £32,503 in respect of rent and further deductions of £8,174 for the costs of travelling by taxi and subsistence (restaurant meals). HMRC rejected the claims and Mr Healey appealed. The FTT held that the expenditure on restaurant meals was not incurred wholly and exclusively for the purposes of his profession and rejected the claim for taxi fares as there were insufficient receipts. However the FTT Judge allowed the cost of the rent of the flat. HMRC appealed. The UTT remitted the case for rehearing as the FTT had failed to apply the wholly and exclusively test correctly. In particular the FTT needed to reconsider whether the sole purpose of renting the flat was in order for Mr Healey to carry on his profession of actor. If there was a dual purpose of providing warmth shelter and comfort as well then there should be no deduction. HMRC stated that expenditure on hotels and clubs for short term assignments would be allowable but a 6 month let of a flat would not. The Tribunal rejected HMRC’s submission that the 6 month residential tenancy could not be exclusively for business purposes, there was no hard and fast rule. However the Tribunal determined that there was a dual purpose and also dismissed the taxpayers argument that there should be a just and reasonable apportionment. There was no relief for the cost of the rent.

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