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Travel expenses
Tax deductions on travel and accommodation for work.
We act on behalf of a client who lives in the shires and has recently been requested by an agency to form a limited company in readiness for a contract which is due to start in London.
The initial contract is only for three months and it is unclear whether the contract will be extended or if the client will be taken on as a PAYE employee. The client intends to stay in London during the working week and travel back to their home over the weekend.
Readers’ assistance is sought on the following points:
- Will the travel from the shires to London be a tax deductible expense in the company at, say, 40p a mile for 24 months, assuming the contract is extended or if there is a new contract?
- Will the travel from the London accommodation to the site be tax deductible in the company?
- Will the accommodation cost in London be a tax deductible expense of the company?
- Will the client be able to claim the maximum amount of subsistence at the bench mark rate of £25 per work day for 24 months?
I look forward to readers’ replies.
Query 19,651– Hobbit.
Refurbishment dilemma
Taxation issues on the redevelopment of a building.
My client bought a building 20 years ago for about £25,000. Until the lockdown, it was used as a venue for martial arts meetings and is currently in a poor state of repair.
The building is now in a prime location for redevelopment into flats. A developer has approached my client with an offer to modernise the martial arts venue and build flats on the three floors above the present studio. As part of the agreement, the developer has offered that one of the new flats would be transferred to my client.
My client is not registered for VAT and does not want to have to do so. This would suggest that there is an issue with the cost to the builder of the refurbishment of the venue. Is this correct, and how should this be best approached? And is there an equivalent issue on the flat to be transferred?
The direct tax issue would appear to be whether there will be a charge to capital gains tax rather than income tax, given that my client is not directly involved in the redevelopment trade. But is that too simplistic?
If the charge is to capital gains tax, this would suggest that there is a part disposal involved. But what is the correct approach to the calculation?
As a guide, the cost of the venue refurbishment will be £120,000, and the flat to be transferred might be worth £150,000 if sold in the open market.
Finally, are there any other tax charges that are likely to arise of which I am unaware?
Readers’ views would be gratefully received on the correct approach to the tax issues relating to this transaction.
Query 19,652 – Dunedin.
Life interest trust
Treatment of life interest trust to receive mineral royalties.
I have a case where the trustees of a pre-2006 life interest trust receive mineral royalties for gravel extraction. These have been treated as 25% income and 75% capital for trust accounting purposes but, as dictated by HMRC, all of the royalties have been charged to basic rate income tax on the trustees.
Six years’ ago the life tenant agreed to the payment of the 75% share to the remaindermen on an ongoing basis so each year 25% was paid out to her and the remaining 75% was paid in equal shares among the remaindermen. The life tenant has now died.
Could readers advise on whether the payments made to the remaindermen will qualify for exemption from inheritance tax as gifts from surplus income. They were regular gifts made by the life tenant from income receipts (albeit they were treated as capital in trust law). Otherwise, without the exemption, these sums will have borne inheritance tax as well as income tax.
The position of the remaindermen on receipt of these payments is also unclear. If they are liable to income tax at higher rates, should they have disclosed an additional income tax liability? Or have they simply received capital appointments?
Also, is it the case that, when the life tenant gave up her interest in the 75% (she would only have had an entitlement to the income thereon), there has been a capital disposal for capital gains tax purposes?
Could readers help here?
Query 19,653 – Confused.
Bicycles for employees
VAT issues on cycle to work scheme.
I act for a company that employs many staff and they have operated a cycle to work scheme for six years. The company buys the bikes, makes a salary deduction hire charge to the employees over a three-year period and then, at the end of this time, the employee can either buy the bike or it is sold to a third party.
I asked my client about VAT and his answer was very logical: ‘We don’t claim input tax on any expenses for the bike, including its purchase price, so don’t need to account for output tax on the income. It is a private scheme for the employees.’
The client also advised me that the company pays for a corporate gym scheme membership, which means a local gym can be used free of charge by any manager or director of the company. He has always claimed input tax on these fees, but is this correct?
Taxation readers’ thoughts on these issues would be appreciated.
Query 19,654 – Biker.
