Can we claim input tax on private project of our staff?
Five of our staff have been working hard in their own time to develop an app that helps to identify the best diet mix for specific breeds of dogs. This project is helping to develop a great team spirit in our company, which is highly profitable and cash rich. Suppliers have invoiced us directly.
The total cost incurred so far, mainly on professional fees, is £42,000 and we have claimed input tax of about £7,000. Although there is no output tax linked to this input tax, if the app gets to the point where it has a marketable value, the five staff will form a company or LLP, register for VAT, and we will recharge the total costs as a management fee, plus a 10% mark-up, plus VAT. However, this new entity might never happen or could be delayed for three or four years, depending on many factors. Do readers think our input tax claim is correct?
Query 20,763 – Herriot
Pension conundrums
I have a client who qualified for state pension on her 66th birthday, on 31 December 2025. I am not sure how much I should enter on her tax return for 2025-26. Her letter from the DWP confirms that she would be paid (and was) £38.74 for 31 December itself, then three four-weekly amounts of £1,084.68 up to 25 March, a total received in the year of £3,292.78. However, there are another 12 days from 26 March to 5 April – is the pension due for that period taxable in the year?
I found query 20,539 (Taxation, 30 June 2025), which is on the same subject, but as far as I can see the answers contradict each other. One says that the calculation should be on a weekly basis; the other says it should be calculated on a daily basis. The fact that the DWP has paid a single day’s benefit for my client’s birthday seems to support the daily basis, but that raised another question – 95 days (1/1/26 to 5/4/26) or 96 days (including 31/12/25)? To add to my confusion, HMRC has put a different figure on her coding notice – £3,525. That is 91 days’ worth, which seems to support the idea that the tax charge should be based on complete weeks. But the payment was for 12 weeks and one odd day.
Given the recent newspaper reports about the confusion over ‘1 week at the old rate and 51 weeks at the new rate’, and HMRC trying to work out how not to tax pensioners whose only source is the state pension, I would be delighted if someone could cast authoritative light on all these issues.
Query 20,764 – Going Crackers.
DTC interaction with LTR rules
Our client is Indian domiciled but falls within the long-term resident (LTR) regime under the ‘ten out of 20’ year rule. They have previously been both UK resident and non-resident and left the UK for India in the 2022-23 tax year. While common law domicile is no longer determinative for UK inheritance tax (IHT) purposes following the introduction of the residence-based regime, it is our understanding that the UK–India double taxation convention (DTC) arrangements may override the LTR rules where the treaty applies. We would be grateful for your views on this.
The client’s main home is in India. They do not own a UK residence, although they retain one UK buy-to-let property. Most of their assets are situated in India, and they hold an Indian overseas citizen of India (OCI) card. They have always intended to retain their Indian domicile and regard India as their permanent home. However, this intention was never formally communicated to HMRC under the former DOM1 advance clearance procedure. Their adult children and grandchildren reside in the UK, and the client visits the UK once or twice each year to spend time with them. Equally, the family also meets in India. The client is a British citizen but has retained British citizenship primarily because a British passport facilitates visa-free travel to many countries, making international travel more convenient.
I would be grateful for readers’ guidance on whether, in these circumstances, the client can rely on their Indian domicile under the UK-India DTC such that their Indian assets would fall outside the scope of UK IHT. In addition, could readers advise what steps, if any, the client should take to strengthen or evidence their Indian domicile should this become relevant for treaty purposes?
Query 20,765 – No Dom.
Income tax and NI issues
My client is employed by a UK company. It has been suggested that he and his family might like to move to the Middle East, probably Dubai, in December 2026 or January 2027 to represent and promote the company in that area.
As I understand it, there will be a six-month ‘probation’ period to ensure that this plan is working to the satisfaction of both parties, before it is made permanent. My client and his wife own their own home in the UK, and they would like to keep this. My client’s current thinking is that after six months, if he is to stay abroad, the property will be let.
Could Taxation readers provide some general advice on the income tax and class 1 National Insurance implications of this? When should HMRC be advised of the move? Would (or could) it be best for UK income tax to continue to be deducted during the first year abroad to avoid a substantial UK liability arising if he were to return after six months?
Could the employer pay for removal costs and the costs of letting the UK property and would this be taxable?
I look forward to replies on the above points and any other information that might be relevant in such a situation.
Query 20,766 – Lawrence.
