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New Queries: 24 June 2021

22 June 2021
Issue: 4797 / Categories: Forum & Feedback

Employee subsistence

Treatment of expenses in excess of HMRC scale rates.

I am aware of the HMRC published benchmark scale rate payments for subsistence for both UK and overseas travel which can be paid without incurring a tax and National Insurance liability for qualifying business travel.

HMRC’s Employment Income Manual states no sampling checks need to be made but evidence needs to be retained that the expenses are paid for qualifying journeys. However, can readers clarify from their experience of what kind of evidence might be accepted by HMRC?

The manual also states that where expenses are paid in excess of HMRC scale rates, the excess is liable to tax and National Insurance. However, their guidance also states that round sum expenses payments are liable to tax and National Insurance in full.

But at what point is an expense treated as a round sum? If, for example, a union has negotiated subsistence rates which are higher than HMRC scale rates, are these liable to tax and National Insurance in full or is only the excess over HMRC rates liable to tax and National Insurance?

I look forward to readers’ replies.

Query 19,775 – Anon.

Capital allowances

Scope of HP contracts in claiming capital allowances.

During the course of my practice, I often come across an acquisition of assets, very often motor vehicles, by clients under various commercial arrangements.

Reference is made by clients to PCP (personal contract purchase), HP (hire purchase), PCH (personal contract hire), and leasing (contract hire).

The legislation, in CAA 2001, s 67 states in respect of ‘Hire-purchase and similar contracts’ that: ‘The plant or machinery is to be treated … as owned by the person … at any time when he is entitled to the benefit of the contract so far as it relates to the plant or machinery’.

In practice, however, it isn’t always clear which of the above methods of purchase fall within ‘hire-purchase’ referred to in the legislation, for the purpose of obtaining full relief via capital allowances on the purchase. This is depending, of course, on the nature of the asset and the appropriate pools.

Could readers assist with practical indicators as to whether or not a contract is likely to be considered an ‘HP contract’ in this context?

Query 19,776 – Leaser.

Stop gap employment

Accounting treatment of part-time working of musician.

I have a client who is a well-established freelance musician. She has made a good living from performing over the years but everything ground to a halt when coronavirus struck and she has not been able to do any paid musical work since then.

She has earned some income with a series of part-time work such as delivering for Deliveroo. As the restrictions are gradually lifted she is gradually picking up work again and is confident of returning to making a living from performing.

I’m about to prepare her accounts and tax return. Do I treat her music business as having ceased, with a new business starting again when she begins to perform again, or has she been carrying on the same business throughout, with a period in the middle when she did not receive any income? The two approaches give different results because of the capital allowance and overlap relief implications of cessation.

I can’t be the only adviser in this situation. How are other people tackling this issue?

Query 19,777 – Breve.

German VAT

Irish VAT dilemma on export.

We act for a UK subsidiary of a German engineering company. Our client ordered goods from a German supplier for a customer in Ireland. The goods were delivered straight to Ireland without entering the UK.

The German supplier originally sent out an invoice to my client without any VAT added but they have now replaced this with an invoice including 19% of German VAT, citing the reason being that the goods never left the EU.

This seems strange because they didn’t charge our client VAT when the UK was in the EU? My client quoted the Irish customer without any VAT so would suffer a loss on the sale with the 19% VAT charge – they do not hold a licence to directly export goods to Ireland.

Firstly, can readers confirm if the German supplier was correct to add the German VAT?

Also, what is the treatment for the purchase and the sale on our client’s UK VAT return? Is it just outside the scope for both the purchase and sale and excluded completely?

Finally, is there any advice we can give our client should the situation arise in the future apart from just uplifting the quote to the customer with the German VAT element?

Readers’ thoughts would be appreciated.

Query 19,778 – Dublin Dave.

Issue: 4797 / Categories: Forum & Feedback
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