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Rental costs
Are rental costs on working away from home deductible?
I have a number of self-employed clients who are frequently away from home on work projects lasting several months at a time. Rather than stay in hotels they will often find it cheaper to rent a small flat for the duration of the contract.
The hotel expenses would have been allowable deductions but what about the rental costs? Back in 2015 Tim Healy lost his case because he said that he wanted somewhere where family and friends could visit him while he was in London (Tim Healy (TC4425)).
Can readers provide some advice on how do I deal with this issue with my clients? Would it be the case that they would have to confirm to me that they did not take on the rental because they wanted family and friends to visit? Do I have to ask them after the event whether family and friends did actually visit? Or can I simply prepare the return on the basis that the expenses are all allowable and wait to see whether HMRC challenges the deduction?
I look forward to readers’ thoughts on this matter.
Query 19,807 – Traveller.
Rollover relief
Managing cashflow on disposal of replacement assets
My corporate client released a large capital gain with proceeds in the order of £1m in the year to 31 December 2020. Qualifying expenditure for rollover relief purposes of at least £2m in total will be incurred on several different assets during the 36 months period from the date of disposal.
It is likely that one or more of those replacement assets will themselves be sold within a couple of years of acquisition but at this stage my client does not know in what order they will be sold.
Can he keep his options open by not allocating the original proceeds against any particular asset until he knows which of the new assets will be sold first? Can he achieve this by using the provisional claim rules in conjunction with the four-year time limit for making claims? Ultimately, he accepts that once all of the new assets are sold the tax deferral will unwind but the sums here are large and managing tax cashflow is important.
Readers’ views would be appreciated.
Query 19,808 – Fabian.
VAT
Can input tax be claimed on motor-bike expenses?
I act for a wealthy client who has purchased a motor-bike in his company, which requires a lot of renovation work spent on it, including VAT. The intention is that it will be raced in some high-profile events each year, including the Isle of Man TT. The director is very passionate about motorbikes and will ride it in some of the races – for others, the company will pay a fee to a professional rider.
The company name and logo will be advertised on both the motorbike and driver’s uniform, and there will be further advertising in, say, event programmes. The director has also devoted a page about the progress of the bike renovation, with photos, on the company website. An intention is that suppliers and customers will be invited to racing events and be entertained, giving them the chance to sit on the vehicle and, in some cases, have a ride on it. The bike will not be used on public roads, only for racing activities.
Based on this intention, what is the situation with input tax recovery on the bike costs? My client thinks that VAT on all costs should be claimed, as a friend of his has claimed 100% of costs through his business on their racing bike. I am not so sure. There was no VAT on the original purchase of the bike.
Readers’ thoughts would be welcome.
Query 19,809 – Brands Hatch.
Gifts out of income
Relief for making gifts out of income to next generation
I have been discussing with my wealthy client using the ‘normal expenditure out of income rules’ to gradually pass wealth to his children without creating a potentially exempt transfer (PET).
His income is greatly more than his outgoings and at the levels he proposes I do not think that there will be any difficult in demonstrating that the gifts were indeed made from income.
My question is when the relief will be first available. Suppose in year 1 he makes a gift out of income of £50,000. If he has not done that before can this be ‘normal’ expenditure or does he have to wait until a pattern has formed? Suppose that he continues to make annual gifts of £50,000. If we assume that by year 3 a pattern has been established then that £50,000 will qualify. But what about the two previous gifts: do they qualify retrospectively because they can now be shown to be part of a pattern?
If my client survives seven years from the first gift there would no problem, but if he did not and it was necessary to review whether PETS had become chargeable, this point could make a difference.
Have any readers considered this matter before?
Query 19,810 – Generous.
