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New queries: 11 February 2021

09 February 2021
Issue: 4779 / Categories: Forum & Feedback

Working on site

Can a temporary mobile office be a business expense?

My client is a sole trader who runs his business from four rented outbuildings in a country park.

He is running out of space and has been forced to create an office at home from which he is currently working. This situation is not ideal because he would prefer to be on site to oversee staff and daily business activity.

He has access to a free, large parking area adjacent to the rented units and is considering buying a camper van or motorhome that could be adapted and used as an office, so he can be on site with his team daily.

Would this purchase be considered a legitimate business expense? He is also searching for larger premises, but currently there is nothing available within the rural vicinity. He has asked if he could rent an area of the car park to place a container on to use as an office, but this has been refused.

I look forward to hearing from Taxation readers.

Query 19,703 – Gregarious.

Self-assessment confusion

When can tax liability be paid through the PAYE system?

My client’s tax liability shown by the 2018-19 tax return was £8,000 and after deducting payments on account made for the year the balance due was £2,500.

Box 2 on page TRG 13 of the tax return helpsheet states that, if the amount owed is less than £3,000 for the year, HMRC will try to collect it through PAYE in 2020-21. The word ‘owe’ is in the present tense so that anyone reading it will understand it to mean the tax owing at the time the tax return is completed and the liability is established. It is not possible to owe more than that.

The tax return was submitted in early December 2019 and a claim was made for the £2,500 to be collected through the PAYE code for 2020-21. The client heard nothing until July 2020 when a statement arrived showing the tax of £2,500 due together with interest and a penalty of about £120 because the tax had not been paid by 31 January 2020.

On enquiring, I was told that the provisions for the tax to be collected through PAYE were not fulfilled because, for this purpose, it is the gross liability that is taken into account and not the amount actually owing.

This is certainly not what the helpsheet says, so an appeal was made. This has been refused on the grounds that there is not a reasonable excuse.

HMRC has said: ‘The self-assessment legislation is very clear that we do not take account of any credit or payments set against the balancing payment’.

Have any readers come across this situation? If correct, this is something to be aware of when advising clients on how a liability can be settled.

I look forward to receiving replies.

Query 19,704 – Appellant.

Enterprise investment scheme

Can EIS relief be carried forward between companies?

In 2019-20, my client invested £25,000 in companies that qualified for enterprise investment scheme (EIS) relief. The managing company spread the money between ten qualifying companies.

In January 2021, my client received a letter from the managing company saying that one of the companies had been bought by a company that was not eligible for EIS relief. He would thus have to repay to HMRC the tax refund on that investment. In the event, the company was sold at a profit so he has not lost anything except nine months of the three years to make the investment eligible for inheritance tax relief.

If the managing company had immediately reinvested the funds in another EIS qualifying company would there have been any carry forward of the relief and continuity of the investment for inheritance tax relief purposes?

I hope Taxation readers can advise.

Query 19,705 – Qualifier.

Partial exemption

Is partial exemption calculation wrong?

I act for a VAT registered property landlord – their portfolio consists of two commercial properties where there is no option to tax election in place, and one where there is a mixture of commercial and residential parts – there is an option to tax in place on this property and VAT is charged on rent for the commercial shops but not for the apartments.

Our strategy has always been to claim no input tax on costs relevant to the two unopted properties because all the rent is exempt from VAT. With regard to input tax on costs relevant to the opted building, we claim input tax based on the ratio of taxable rent from the commercial lettings, compared to the total rent from the building, including the residential income. We do an annual adjustment at the end of March.

A colleague says we have overclaimed input tax because we also need to include the rental income from the other two properties in the denominator part of the fraction.

This seems very unfair because these two properties have their own cost centres and no input tax is claimed. We have never agreed any method with HMRC, but I know that the standard method is based on income, which is what we have always done.

Taxation readers’ thoughts would be appreciated. If we have declared the wrong figures, how should we correct the problem both retrospectively and in the future?

Query 19,706 – Landlord.

Issue: 4779 / Categories: Forum & Feedback
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