Water everywhere
My clients are a successful UK partnership of four water engineers. They are looking to support charities working overseas to provide clean water in developing countries. They have been making donations to these charities for some years, but now want to take things further by providing practical help on the ground. So, this year they have, one at a time, gone overseas on a voluntary basis to work for a month at a time on various water projects. The partnership has borne the costs of travel and accommodation. The individuals have worked very hard while abroad – by no stretch of the imagination has this been a holiday.
What are readers’ views on the tax deductibility of these costs? The individuals are carrying on their profession when abroad, it is just that they are not being paid. On that basis I think there is an argument that the costs are deductible.
Query 20,815 – Plumber.
Reconciling the statutory calculation
I would appreciate some clarification on research and development (R&D) tax credit claims. Under the merged R&D expenditure credit (RDEC) scheme, consider the following example.
A company has £12,400 of R&D expenditure credit brought forward from the previous accounting period under Step 3 (CTA 2009, s 1042J).
In the current accounting period:
- no new RDEC is claimed;
- the corporation tax liability is £10,000;
- £10,000 of the brought-forward credit is used to discharge that liability;
- £2,400 remains, with no other liabilities, group surrender or PAYE/National Insurance cap restriction affecting the example.
HMRC’s Corporate Intangibles Research and Development Manual at CIRD112100 appears to indicate that the remaining £2,400 should be restricted at Step 2 and carried forward, rather than paid to the company.
However, the published CT600L instructions calculate box L62 using L15 (current-period RDEC) minus L40 (remaining corporation tax liability). With no new RDEC claim, L15 is zero, resulting in L62 and L65 both being zero.
This appears to leave the £2,400 available for payment, contrary to the treatment described in CIRD112100.
My question is: How should the £2,400 be correctly reported on CT600L in practice? Is there an accepted treatment or workaround that reconciles the statutory calculation with HMRC’s electronic filing requirements?
I’d be particularly grateful for any practical experience or HMRC clarification concerning this situation.
Query 20,816 – Baffled.
Would corporate savings avoid the income tax savings rate?
A client of mine (and I guess there will be others) is very annoyed at the 4% additional rate that will be charged on property income and interest. I would not be surprised if this is not increased in future years and wonder whether it is a return to the old investment income surcharge that I recall from my early days in tax.
Instead of keeping his surplus cash in a bank or building society account, my client was wondering whether he should loan it to his company to invest. Do readers think this might be a good idea, especially if similar interest yields can be obtained? A quick google search suggests that they can and I believe that a company benefits from FSCS protection. If the company then paid him interest on that loan, my client was wondering whether this would be subject to the savings rate. I am assuming that it would be, but should welcome confirmation of this. It did occur to me, however, that if he simply withdrew the money as extra salary, given that he is over state pension age, could this result in a tax saving?
The only other employee of the company is my client’s wife – also over state pension age – and both draw salaries from it.
I should be grateful for readers’ thoughts on this.
Query 20,817 – Saver.
How do partial exemption de minimis limits work?
I am confused by the application of the partial exemption de minimis rules for a VAT registered business that makes exempt supplies for the first time.
My client is a management consultant and his income was fully taxable until 31 January 2026; he then found a tenant for part of his trading premises and decided not to opt to tax the property, so the rental income from subletting is exempt from VAT.
- The first rental payment was made by the tenant on 30 April 2026 (covering three months’ occupancy in arrears).
- My client’s first expense with the arrangement was to pay an agency finder fee of £7,000 plus £1,400 VAT on 28 February 2026, the same day that the supplier issued its sales invoice.
- The annual rental income will be £18,000 and my client’s taxable consultancy income is £100,000 excluding VAT.
- My client submits calendar quarter returns.
My thinking is that my client would be de minimis for partial exemption purposes because his exempt input tax for the tax year ended 31 March 2026 is less than £7,500 and also less than 50% of his total input tax, but a colleague disagrees because £1,400 for February and March 2026 exceeds £625 per month on average. Can readers clarify the situation, please?
Query 20,818 – Partial Pete.
