Residential Letting – What is the Finance Cost Allowance and how are Unused Finance Costs used up?

This is often referred to clause 24 or section 24 relating to Finance Act 2015 (No 2) [Section 26 Finance Act 2016] that introduced the change which started from 6th April 2017. It took full force for the tax year 2020/21. The rules restrict interest relief to the basic rate of tax (20%).

The legislation was inserted into Income Tax (Trading and Other Income) Act 2005: Sections 272A, 272B and 274A-274C and Income Tax Act 2007: Sections 399A and 399B.

The legislation does not apply to Furnished Holiday Lets or Limited Companies.

Finance Costs include all finance costs, even those to buy furnishings and the incidental cost of arranging the finance.

The Relief

Its calculated as 20% of the lower of

  1. Finance costs not deducted from income, or
  2. The profits of the property business, or
  3. The adjusted total income

What is adjusted Total Income?

Net income is defined in the Income Tax Act 2007 Section 23

23 The calculation of income tax liability

To find the liability of a person (“the taxpayer”) to income tax for a tax year, take the following steps. Step 1

Identify the amounts of income on which the taxpayer is charged to income tax for the tax year.

The sum of those amounts is “total income”.

Each of those amounts is a “component” of total income.

Step 2

Deduct from the components the amount of any relief under a provision listed in relation to the taxpayer in section 24 to which the taxpayer is entitled for the tax year.

See [F1sections 24A and 25] for further provision about the deduction of those reliefs.

The sum of the amounts of the components left after this step is “net income”.

It excludes Saving and Dividend Income (ITA07/S18 (3) & (4)).

It excludes the personal allowance and blind persons allowance (ITA07/S23).

The end results is adjusted total income (ATI) – S274AA.

A tax reduction can not be used to create a tax refund but it can be carried forward.

Example 2020-21 onwards

Fred has

  • Employment Income £45,000
  • Residential Property Income £25,000
  • Mortgage Interest £10,000
  • Allowable expenses £5,000
  • Property Losses Carried Forward £15,500
  • Unused Finance Costs carried forward from 2019-20 £2,000

Calculation as follows

Employment Income£45,000
Property Income Calculation
Rental Income£25,000
Finance Costs – you can’t deduct Mortgage Interest£0
Allowable Expenses-£5,000
Property Business Profits£20,000
Less Property Losses Carried Forward-£15,500
Taxable Property Business Profits£4,500
Net Income – Employment and Property£49,500
Income Tax Calculation
Personal Allowance £12,500 at 0%
Basic Rate £37,000 at 20%£7,400
Higher Rate £0 at 40%
Income Tax Liability before Residential allowance£7,400

The Basic Rate Tax 20% reduction for Residential Property is the lower of

  1. Finance Costs not deducted in this case that’s £10,000 Mortgage and £2,000 Unused Finance Costs carried forward from 2019-20 which totals £12,000
  2. Property business profits which are £4,500
  3. Adjusted total income (exceeding personal allowance) £37,000 (£49,500 – £12,500)

The lowest amount is the

  • Property business profits which are £4,500
  • So the basic rate tax reduction is 20% x £4,500 = £900

    We can now deduct that from the £7,400, leaving £6,500 as the final income tax liability.

    Unused Finance Costs
    Residential Finance Costs£12,000
    Used in the Basic Rate Reduction-£4,500
    Unused Residential Finance Costs£7,500

    The Unused Residential Finance Cost is carried forward to the next tax year, in this example 2021-22.

    We repeat the calculations above in 2021-22, following all the same steps.

    Let’s assume in 2021-22 his net income from Employment and Property is £60,000

    The tax would be 0% x £12,570 plus 20% x £37,700 plus 40% x £9,730 = £11,432

    The Basic Rate Tax 20% reduction for Residential Property is the lower of

  • Finance Costs not deducted £10,000 Mortgage as in the previous year and £7,500
  • Unused Finance Costs = £17,500

  • Property business profits which are £20,000 (assuming its the same as the previous year – losses having been used up in the previous year)
  • Adjusted total income (exceeding personal allowance) £47,430 (£60,000 – £12,570)
  • The lowest is £17,500.

    So the basic rate deduction is £17,500 x 20% = £3,500

    £11,432 less £3,500 gives a final income tax liability of £7,932

    Unused Finance Costs
    Residential Finance Costs and carried forward amount£17,500
    Used in Basic Rate Reduction-£17,500
    Unused Residential Finance Costs to be Carried Forward£0

    A Summary of Tax, Savings and Benefits of Electric Cars

    What is the plug-in grant?

    The plug-in grant has been around for several years as an incentive to purchase electric vehicles to curb climate change. The grant has been modified many times, but it currently offers £2,500 off of eligible low-emission cars and up to £16,000 for larger vehicles.

    You do not need to apply for the grant. The car dealer will include the grant in the vehicle’s price if it is eligible.

    • Cars: CO2 emissions of less than 50g/km and can travel at least 112km with zero emissions. The car must cost less than £35,000 and be on the list of government approved vehicles. The grant will pay for 35% of the car price up to £2,500.

    Grants for vehicle charging points

    In addition to the plug-in grant, you can also receive up to £350 towards the cost of a vehicle charging point. The Electric Vehicle Homecharge Scheme (EVHS) provides up to 75% of the installation cost on domestic properties in the UK.

    There is also the Workplace Charging Scheme (WCS) which is a voucher based scheme that provides support to businesses who install vehicle charging points.

    Both grants need to be applied for from the government’s website.

    HMRC Advisory Fuel Rate

    The advisory electricity rate for fully electric cars is 4p per mile.

    So you can claim 4p per mile for business miles in an electric car.

    Advisory fuel rates – GOV.UK (

    100% Capital Allowances

    Businesses of all sizes can claim 100% FYAs on capital expenditure on a car (CA23153) provided that:

    • the car is ‘unused and not second hand’, and is first registered on or after 17 April 2002;
    • it is an electric car or a car with qualifying CO2 emissions of not more than a specified amount;
    • the expenditure is incurred between 17 April 2002 and 31 March 2025; and
    • the expenditure is not excluded by the general FYA exclusions, see CA23110.

    Second Hand zero emission cars are added to the main rate pool and written down at 18%

    Benefit in Kind

    Cars first registered from 6 April 2020 (WLTP)

    CO2 emissions figureElectric range figure2020–212021-22
    1–50130 or more0%1%
    1–50Less than 3012%13%

    Is it a Repair, Replacement (RDI) or Improvement?

    This is probably one of the most difficult cost types to define and is extremely confusing for property investors.

    The guidance never seems to quite fit with the work undertaken.

    Its an issue for accountants too, often the investor lists all the costs rather than the projects so you end up with lots of entries like B&Q and have to try to reshuffle them into projects like a new kitchen.

    HMRC has a tool kit Capital v Revenue which gives some guidance.

    In general investors want costs to be repairs (which can be deducted from profit and save tax now) where as HMRC would probably prefer improvements (which are held back and used the Capital Gains Computation when the property is sold).

    In this blog I will try to give some further help aimed at owners of Buy to Let properties, the rules apply both to individual investors and those who invest via a company.

    Pre-Letting Costs

    The general rule is that if you buy a run down property that needs work doing on it before it can be let then that work is an improvement (capital cost).

    However, if you had a letter from an letting agent saying it was lettable in its purchase condition then the works could be a repair (revenue).

    If substantial work is needed, its best to discuss this with your accountant before the work is done to determine its status as an Improvement or Repair.

    The important point is the property needs to in fit state to let before the alterations, refurbishment, repairs are carried out if you want the costs to be repairs.

    Here is HMRC’s Guidance from PIM2030

    Repairs after a property is acquired

    Repairs to reinstate a worn or dilapidated asset are usually deductible as revenue expenditure. The mere fact that the customer bought the asset not long before the repairs are made does not in itself make the repair a capital expense. But a change of ownership combined with one or more additional factors may mean the expenditure is capital. Examples of such factors are:

    • A property acquired that wasn’t in a fit state for use in the business until the repairs had been carried out or that couldn’t continue to be let without repairs being made shortly after acquisition.
    • The price paid for the property was substantially reduced because of its dilapidated state. A deduction isn’t denied where the purchase price merely reflects the reduced value of the asset due to normal wear and tear (for example, between normal exterior painting cycles). This is so even if the customer makes the repairs just after they acquire the asset.
    • The customer makes an agreement that commits them to reinstate the property to a good state of repair.


    HMRC have agreed “A replacement of a part of the “entirety” with the nearest modern equivalent is allowable as a repair for tax purposes.” (Tax Bulletin 59)


    • Replacing single glazed windows with double glazed windows
    • Replacing guttering with a new modern guttering
    • Replacing lead pipes with copper or plastic pipes
    • Replacing wooden beams with steel girders

    What about Kitchens?

    The following refurbishment works would be repairs

    • Stripping out
    • Replacing Base Units
    • Replacing Wall Units
    • Replacing Work Tops
    • Re-tiling
    • Floor repairs
    • Plastering
    • Wiring

    Provided you are replacing with a similar standard kitchen

    But if you add storage or equipment these items would be capital improvements.

    There are also special rules relating to expenditure on specified parts of buildings called
    ‘integral features’. The following are integral features:

    • an electrical system (including a lighting system)
    • a cold water system
    • a space or water heating system, a powered system of ventilation, air cooling or air
    purification, and any floor or ceiling comprised in such a system
    • a lift, an escalator or a moving walkway
    • external solar shading.

    Under these rules if expenditure on an integral feature represents the whole, or more than 50%,
    of the cost of replacing the integral feature, then the whole of the expenditure is to be treated as
    capital expenditure

    Replacement of Domestic Items (RDI)

    Since 2016 Replacement of Domestic Items Relief has replaced the Wear and Tear Allowance. The rules are in PIM3210.

    Note – RDI is not given for the purchase of new items that are not replacements

    In order for relief to be given, 4 conditions must be met:

    Condition A – the individual or company looking to claim the relief must carry on a property business that includes the letting of a dwelling-house(s).

    Condition B – an old domestic item that has been provided for use in the dwelling-house is replaced with the purchase of a new domestic item. The new item must be provided for the exclusive use of the lessee in that dwelling-house and the old item must no longer be available for use by the lessee.

    Condition C – The expenditure on the new item must not prohibited by the wholly and exclusive rule (see BIM37000) but would otherwise be prohibited by the capital expenditure rule (see BIM35000).

    Condition D – Capital Allowances must not have been claimed in respect of the expenditure on the new domestic item.

    If the 4 conditions are met, then a deduction for the expenditure on the new item can be claimed.

    However, a deduction is not allowed if:

    • The dwelling-house in question is, in full or part, a furnished holiday letting (special rules apply to FHL’s)
    • Rent-a-Room receipts have been received in respect of the dwelling-house in question and Rent-a-Room relief has been claimed in relation to those receipts.

    If the new item is of broadly the same quality/standard as the old item and doesn’t represent an improvement then the deduction is the cost of the new item. Note that for these purposes, just because an item is brand new does not make it an improvement over an item which has been in use for several years and suffered general wear and tear. For example, a brand new budget washing machine costing circa £200 is not an improvement over a 5 year old washing machine that cost around £200 at the time of purchase (or slightly less, taking into account inflation).

    RDI will be given for ‘domestic items’ such as:

    • Moveable furniture such as beds and free-standing wardrobes.
    • Furnishings such as carpets, curtains and linen.
    • Household appliances such as televisions, fridges and freezers.
    • Kitchenware such as crockery and cutlery


    If an alteration increases the market value of the building, changes its function, or extends the life of the whole building then its an improvement.

    We also noted under pre-letting that work to make a property lettable could be an improvement.

    PIM2030 states

    But there is usually no improvement if trivial increases in performance or capacity arise solely from the replacement of old materials with newer but broadly equivalent materials. For example, the replacement of pipes or storage tanks of imperial measure with the closest metric equivalent may result in slightly increased diameter or capacity but the cost is still revenue expenditure.

    Where a significant improvement arises from the change of materials, the whole of the cost is capital expenditure. This includes things like redecoration after the main work has been done (redecoration would ordinarily be a revenue expense). The entire cost is capital expenditure, including the expense of making good any damage to decorations.

    Alterations to a building may be so extensive as to amount to the reconstruction of the property. This will be capital expenditure and it can’t be deducted as an ordinary revenue business expense.

    Property and Capital Gains Tax Relief – 2020 changes

    The Government love making changes to property tax, often in order to increase tax.

    Legislation will be introduced in Finance Bill 2019-20 amending sections 222 to 224 TCGA. These changes will:

    reduce the final period exemption from 18 months to 9 months (there are no changes to the 36 months that are available to disabled persons or those in a care home)

    reform lettings relief so that it only applies in circumstances where the owner of the property is in shared-occupancy with a tenant

    make some revisions to job related accommodation relief by extending it to serving members of the armed forces, who are required to live away from home and, instead of being provided with job-related accommodation, receive payments from the MOD under its Future Accommodation Model and uses those funds to pay for accommodation

    legislate 2 ESC – D21 Late claims in dual residence cases and D49 Short delay in owner occupiers taking up residence

    clarify the rules concerning the transfer of residential properties between spouses or civil partners – those rules will make clear that where an individual transfers all or part of an interest in a residential property that they own to their spouse or civil partner, the receiving spouse or civil partner will inherit the transferring spouse’s or civil partner’s previous history of use of that property, resulting in a fairer outcome

    Why are Capital Allowances important on commercial property?

    The rules are in Capital Allowances Act 2001.

    Sections 21 and 22 explain the Assets which can’t be claimed and Section 23 lists items that can be claimed

    Expenditure unaffected by sections 21 and 22
    1. Machinery (including devices for providing motive power) not within any other item in this list.
    2. Electrical systems (including lighting systems) and cold water, gas and sewerage systems provided mainly—(a) to meet the particular requirements of the qualifying activity, or (b) to serve particular plant or machinery used for the purposes of the qualifying activity.
    3. Space or water heating systems; powered systems of ventilation, air cooling or air purification; and any floor or ceiling comprised in such systems.
    4. Manufacturing or processing equipment; storage equipment (including cold rooms); display equipment; and counters, checkouts and similar equipment.
    5. Cookers, washing machines, dishwashers, refrigerators and similar equipment; washbasins, sinks, baths, showers, sanitary ware and similar equipment; and furniture and furnishings.
    6. Lifts, hoists, escalators and moving walkways.
    7. Sound insulation provided mainly to meet the particular requirements of the qualifying activity.
    8. Computer, telecommunication and surveillance systems (including their wiring or other links).
    9. Refrigeration or cooling equipment.
    10. Fire alarm systems; sprinkler and other equipment for extinguishing or containing fires.
    11. Burglar alarm systems.
    12. Strong rooms in bank or building society premises; safes.
    13. Partition walls, where moveable and intended to be moved in the course of the qualifying activity.
    14. Decorative assets provided for the enjoyment of the public in hotel, restaurant or similar trades.
    15. Advertising hoardings; signs, displays and similar assets.
    16. Swimming pools (including diving boards, slides and structures on which such boards or slides are mounted).
    17. Any glasshouse constructed so that the required environment (namely, air, heat, light, irrigation and temperature) for the growing of plants is provided automatically by means of devices forming an integral part of its structure.
    18. Cold stores.
    19. Caravans provided mainly for holiday lettings.
    20. Buildings provided for testing aircraft engines run within the buildings.
    21. Moveable buildings intended to be moved in the course of the qualifying activity.
    22. The alteration of land for the purpose only of installing plant or machinery.
    23. The provision of dry docks.
    24. The provision of any jetty or similar structure provided mainly to carry plant or machinery.
    25. The provision of pipelines or underground ducts or tunnels with a primary purpose of carrying utility conduits.
    26. The provision of towers to support floodlights.
    27.The provision of—(a) any reservoir incorporated into a water treatment works, or (b) any service reservoir of treated water for supply within any housing estate or other particular locality.
    28.The provision of—(a) silos provided for temporary storage, or(b) storage tanks.
    29. The provision of slurry pits or silage clamps.
    30. The provision of fish tanks or fish ponds.
    31. The provision of rails, sleepers and ballast for a railway or tramway.
    32. The provision of structures and other assets for providing the setting for any ride at an amusement park or exhibition.
    33. The provision of fixed zoo cages.


    Sections 21 and 22 do not apply to any expenditure to which any of the provisions listed in subsection (2) applies.

    (2)The provisions are—

    section 28 (thermal insulation of industrial buildings);

    section 29 (fire safety);

    section 30 (safety at designated sports grounds);

    section 31 (safety at regulated stands at sports grounds);

    section 32 (safety at other sports grounds);

    section 33 (personal security);

    section 71 (software and rights to software);

    As CATAX say in their video 9 out of 10 commercial building owners are not claiming these capital allowances!

    The key reason why they aren’t claiming is because when you buy or develop a building the costs don’t tend to be broken down to show these items so you need to have them retrospectively assessed by a surveyor.

    If you are buying a commercial property the CPSE will ask the seller about Capital Allowances. Sellers will need to pool their fixtures expenditure (even where they have not, nor do not wish to claim allowances themselves) unless they are prepared to risk the price of their property being chipped down in recognition that no allowances will be available.

    Often at the time of Sale a Section 198 will agree the Capital Allowances

    CAA01/S200 – S201An election under CAA01/S198 or S199 must be made by notice in writing to HMRC.

    It should contain the following information:

    * the amount fixed by the election, 
    * the name of each person making the election, 
    * information sufficient to identify the fixture and the relevant land, 
    * particulars of the interest acquired by or the lease granted to the purchaser; and 
    * the tax district references of each of the persons making the election. 
    The election is irrevocable. 
    The time limit for making the election is two years after the time when the interest is acquired by the buyer or the buyer is granted the lease. 
    A copy of the election must be included with each party's return for the first period affected by it. This will normally be the period in which the disposal or acquisition takes place. 
    The amount apportioned to the fixture must be quantified when the election is made.

    It’s time for a Tax and NI free Trivial Benefit

    hand holding christmas voucher isolated over white

    Christmas is definitely a time when you can give your employees and yourself a trivial benefit worth up to £50.

    Section 323A ITEPA 2003 sets out a statutory exemption for trivial benefits. Under this exemption, if an employer provides a benefit to its employees, the benefit is exempt from tax as employment income if all the following conditions are satisfied:

    • the cost of providing the benefit does not exceed £50 (or the average cost per employee if a benefit is provided to a group of employees and it is impracticable to work out the exact cost per person) (see EIM21865)
    • the benefit is not cash or a cash voucher (see EIM21866)
    • the employee is not entitled to the benefit as part of any contractual obligation (including under salary sacrifice arrangements) (see EIM21867)
    • the benefit is not provided in recognition of particular services performed by the employee as part of their employment duties (or in anticipation of such services) (see EIM21868)

    Where the employer is a close company and the benefit is provided to an individual who is a director or other office holder of the company (or a member of their family or household) the exemption is capped at a total cost of £300 in the tax year (see EIM21869).

    Here is an example

    The Employer provides each of its employees with a bottle of wine costing £25 at Christmas. However, as an alternative, it provides employees who do not drink alcohol with a £25 gift voucher for a national supermarket chain which they can exchange for an alternative non-alcoholic Christmas gift. Both the bottle of wine and the non-cash gift voucher can be covered by the exemption.

    In fact all shop vouchers that can’t be cash in will count provided the value is less than £50.

    So why not make a list of special occasions:



    New Year




    Buy a stock of vouchers and give them out.

    This is a fantastic tax free benefit.

    Are you making the most of tax free benefits?

    I want you

    Have you considered giving your employees or yourself benefits in kind that are tax free, here are some to choose from:

    1. Pensions – Up to £40k can be paid in to your pension scheme by your employer (2015/16)  and you can use carry forward to pay in even more
    2. Childcare – Up to £55 per week but check the rules to makesure your childcare complies (HMRC Leaflet IR115)
    3. Mobile Phone – One per employee
    4. Lunch – Tax Free Lunch Blog
    5. Cycle Schemes – Cycle to Work Blog
    6. Fitness – Fitness Blog
    7. Parties and Gifts – Christmas Blog
    8. Parking – Parking Blog
    9. Business Mileage Allowance – 45p for the first 10,000 miles then 25p
    10. Long Service Award – A bit restrictive as you need 20 years service, the tax free amount is £50 x the number of years
    11. Eye Tests and Spectacles – The Eye Test must be needed under the Health & Safety at Work Act
    12. Suggestion Schemes – Suggestion Scheme Blog
    13. Insurance such and Death in Service and Income Protection – Medical Insurance Blog
    14. Travel Expenses – Travel Blog
    15. Working From Home – Working from Home Blog
    16. Clothing – Tax Allowances
    17. Trivial Benefits – Trivial Blog
    18. Training – Training and Salary Sacrifice CPD
    19. Relocation Costs
    20. IPad or Laptop – IPad used for Business
    21. Rent a Room to another employee – Rent a room blog

    Is my training tax deductible?

    Training Practice Workshop Mentoring Learning Concept

    Training courses can be expensive, in this blog we are going to focus on the self employed.

    The key rules are contained in BIM42526

    Specific deductions: administration: own training courses

    Provided it is incurred wholly and exclusively for the purposes of the trade carried on by the individual at the time the training is undertaken, expenditure on training courses attended by the proprietor of a business (either as a sole trader, or in partnership with others) with the purpose of up-dating their skills and professional expertise is normally revenue expenditure, which is deductible from the profits of the business.

    Business purpose test

    In considering the question of purpose, you should not take an unduly narrow view of whether the content of any particular course only up-dates existing skills of the individual. But if it is clear that, for example, a completely new specialisation or qualification will be acquired as a result of the expenditure, it is unlikely that the expenditure will be wholly and exclusively for the purposes of the existing trade.

    Capital test

    Expenditure on new skills etc may also be capital if what is acquired can be viewed as an identifiable asset of sufficient substance and endurance. See Dass v Special Commissioner and others [2006] EWHC2491 (Ch)

    Let’s take the example of Property Courses

    There are many property courses available for investors, often the investors are self employed/sole traders/individual investors, the courses can cost thousands.

    What courses are claimable:

    • Improving your skills – for example you have a basic understanding of finances but want improve your knowledge of tax

    What courses are not claimable:

    • Beginners Day/Novice Courses – any course for beginners or novices would suggest you have no previous knowledge so they won’t be allowed
    • New Skills – you want to learn something new for example you currently let property and want to learn how to do property development

    If the course is disallowed the travel costs will also be disallowed

    What about companies?

    The rules for companies are much easier to comply with and written with a much wider scope..

    Income Tax (Earnings and Pensions) Act 2003

    Section 250 Exemption of work-related training provision

    (1)No liability to income tax arises by virtue of—

    (a)the provision for an employee of work-related training or any benefit incidental to such training, or

    (b)the payment or reimbursement to or in respect of an employee of—

    (i)the cost of work-related training or of any benefit incidental to such training, or

    (ii)any costs of a kind specified in subsection (2) in respect of such training.

    (2)The costs are—

    (a)costs which are incidental to the employee undertaking the training,

    (b)expenses incurred in connection with an examination or other assessment of what the employee has gained from the training, and

    (c)the cost of obtaining any qualification, registration or award to which the employee becomes or may become entitled as a result of the training or such an examination or other assessment.

    Section 251 Meaning of “work-related training”

    (1)In this Chapter “work-related training”, in relation to an employee, means a training course or other activity designed to impart, instil, improve or reinforce any knowledge, skills or personal qualities which—

    (a)are likely to prove useful to the employee when performing the duties of the employment or a related employment, or

    (b)will qualify or better qualify the employee—

    (i)to perform those duties, or

    (ii)to participate in any charitable or voluntary activities that are available to be performed in association with the employment or a related employment.

    (2)For this purpose “related employment”, in relation to an employee, means another employment with the same employer, or with a person connected with the employer, which the employee—

    (a)is to hold,

    (b)has a serious opportunity of holding, or

    (c)can realistically expect to have a serious opportunity of holding in due course.

    Can my Staff have tax free living accommodation?

    Emergency Mobile Application

    In general providing living accommodation to employees is treated as a taxable benefit in kind with the benefit value based on the cash equivalent.
    accommodation value
    The main occupations which satisfy the rules for exemption are:
    • agricultural workers living on farms or agricultural estates
    • lock-gate and level crossing gatekeepers
    •caretakers who live on the premises for which they are responsible where
    they are on call outside normal working hours
    •stewards and greenkeepers who live on the premises they look after
    •managers of public houses who live on the premises
    •wardens of sheltered housing who live on the premises where they are on
    call outside normal working hours
    •police officers and Ministry of Defence police
    •prison governors, officers and chaplains
    •clergymen and ministers of religion, unless engaged on administrative
    duties only
    •members of HM Forces
    •members of the Diplomatic Service
    •managers of newspaper shops that have paper rounds
    •managers of traditional off-licences, that is, those with opening hours
    equivalent to a public house
    •in boarding schools where staff are provided with accommodation on
    or near the school premises – the head teacher, other teachers with pastoral
    or other irregular contractual responsibilities outside normal school hours
    (for example, housemaster), bursar, matron, nurse and doctor
    •veterinary surgeons who live close to the practice in order to respond
    regularly to emergency calls
    •managers of camping and caravan sites living on, or near to, the premises
    •stable staff of racehorse trainers, who live on the premises and certain key
    workers who live close to the stables.

    The Test

    Basically the test is based on ‘necessary’ and ‘customary’

    The test is only satisfied where the employee can demonstrate that occupation of the particular property (as opposed to any other property) is essential to the proper performance of the duties of the employment.

    Support for this view can be derived from Langley and Others v Appleby (53TC1), in which Fox J said at page 21
    “if it is asserted that it is essential for the servant to occupy the house in order to perform his duties, it seems to me that the servant must establish affirmatively that for the performance of his duties he must live in that house and no other.”
    The words “that house and no other” emphasise the strict nature of the test.

    An employee may claim that it is necessary to occupy a particular residence because the employer requires the employee to live there. This is not enough to satisfy the test. It must be shown that the duties of the employment require occupation of the residence. An argument that the employee cannot afford to live elsewhere is not sufficient, see Vertigan v Brady (60TC624).

    Rent Allowances and Deductions

    It is common for an employee to:

    • own the property he lives in, or
    • rent the property from a third party, not his employer.

    In both cases the employer may pay the employee extra salary or a rent allowance to help with the accommodation costs. This extra salary or rent allowance will count as earnings under Section 62 ITEPA 2003

    An employer may own or rent accommodation and provide it to an employee. If the employee is entitled to a fixed wage or salary from which sums are deducted by the employer in respect of the accommodation then the fixed wage or salary is earnings under Section 62 ITEPA 2003. No deduction is allowed from earnings for the deductions made by the employer. See Cordy v Gordon (9TC304) and Machon v McLoughlin (11TC83)


    What can Nurses claim against tax?

    Friendly beautiful nurse

    There are special tax deductions available to Nurses including midwives, auxiliaries, students, dental nurses, nursing assistants and healthcare assistants.

    Laundry & Clothing

    Uniforms are normally not a taxable benefit and often provided by the employer.

    Flat Rate Laundry Expenses

     a. Ambulance staff on active service  185
    b. Nurses, midwives, chiropodists, dental nurses, occupational, speech, physiotherapists and other therapists, healthcare assistants, phlebotomists and radiographers. See guidance at EIM67200 for shoes and stockings/tights allowance 125
    c. Plaster room orderlies, hospital porters, ward clerks, sterile supply workers, hospital domestics and hospital catering staff. 125
    d. Laboratory staff, pharmacists and pharmacy assistants. 80
    e. Uniformed ancillary staff: maintenance workers, grounds staff, drivers, parking attendants and security guards, receptionists and other uniformed staff. 80

    If you are an employee who wants to claim the laundry allowance you should send HMRC a letter as follows:

    Re: Uniform Tax Rebate

    I have been employed at……… since….. My job title is ……. and I wear a company uniform.

    I am obliged to launder the uniform, which is supplied to me by the company. I therefor wish to claim any payment to cover the laundry costs.

    The uniform provided is not suitable to be worn outside of the work environment due to having the company logo on it.

    I would like to receive the rebate in the form of a cheque….

    Expenses deductions may be permitted to nurses of all grades including midwives, for expenditure incurred and defrayed by them on the repair and renewal of shoes and stockings/tights:

    • shoes: where the wearing of a prescribed style is obligatory in the hospital or other workplace in which they may work allow £12 per year
    • stockings/tights/socks: where the wearing of a prescribed style or colour is similarly obligatory, allow £6 per year.


    Nurses may need to travel between locations and the 2013 case of  Dr Samad Samadian v HMRC defined the rules for mileage claims

    The results of the case in summary were:

    • Home to Hospitals – Disallowed
    • Hospital to Hospital – Disallowed as Business Expenses (but could be allowed against Employment)
    • Visits to Patients – Allowed

    Approved Tax Free rates per business mile

    Type of vehicle First 10,000 miles Above 10,000 miles
    Cars and vans 45p 25p
    Motorcycles 24p 24p
    Bikes 20p 20p

    Travel to a Temporary Work Place

    A workplace is a temporary workplace if an employee goes there only to perform a task of limited duration or for a temporary purpose. So even where an employee attends a workplace regularly, it will be a temporary workplace and so not a permanent workplace, if the employee attends for the purpose of performing a task of limited duration or other temporary purpose.

    Limited duration is explained at EIM32080.

    Temporary purpose is explained at EIM32150.

    If a workplace is capable of being a temporary workplace by reference to this rule, you must consider the following additional rules:

    • the 24 month rule, see EIM32080
    • the fixed term appointment rule, see EIM32125
    • the depots and bases rule, see EIM32160
    • the area rule, see EIM32190

    EIM32125 – Section 339(5) ITEPA 2003

    A period of attendance at a workplace for a limited duration does not make that place a temporary workplace if the employee attends in the course of a period of continuous work (see EIM32080) that can be expected to last for all, or almost all, of the period for which he or she is likely to hold, or continue to hold, that employment. In these cases the 24 month rule (see EIM32080) is overridden and the workplace is a permanent workplace.

    The legislation does not define almost all of the period of the employment. You should not normally challenge relief under this paragraph where the likely duration of work at a workplace is less than 80% of the likely duration of the employment.

    Professional fees and subscriptions

    Professional Fee and subscriptions Royal College of Nursing (under N) are reclaimable and HMRC have a list of approved fees

    Training & Courses

    Doctors & Nurses often agree to pay for their own continuing training personally because of a shortage of NHS funds but when they do pay for courses its unlikely they will be able to claim tax relief.

    EIM32530 states that it is well established that employees are not entitled to an expenses deduction under Section 336 ITEPA 2003 for the expenses continuing professional education (CPE). The Commissioners and the Courts have traditionally held that the duties of trainee doctors, for the purpose of the expenses rule, are limited to the clinical work that they do for the NHS Trust by whom they are employed. Their training activities are not undertaken “in the performance of” those duties for the purpose of Section 336 . That is so even though the training activities may be compulsory, and failure to complete them may lead to the employee losing his or her professional qualifications, and/or their job.

    The Commissioners and the Courts upheld that view in a number of cases, as follows:

    Parikh v Sleeman (63TC75) – a hospital doctor was refused relief for the expenses of attending training courses during periods of study leave.

    Snowdon v Charnock (SpC282) – a specialist registrar was refused relief for the expenses of undergoing mandatory personal psychotherapy.

    Consultant Psychiatrist v CIR (SpC557) – an NHS consultant was refused relief for the expenses of CPE necessary to maintain her professional qualification.

    Decadt v CRC (TL3792) – a specialist registrar was refused relief for the expenses of taking professional examinations, even though it was a condition of his employment that he should do so.

    In the recent case of Revenue & Customs Commissioners v Dr Piu Banerjee ([2010] EWCA Civ. 843), the Court of Appeal accepted that a deduction for training costs incurred by an employee should be allowed if the employee was employed on a training contract where training was an intrinsic contractual duty of the employment (see also EIM32535 & EIM32546) and where any personal benefit, unlike most CPE courses, would be incidental and not therefore give rise to a dual purpose of the expenditure.

    Salary Sacrifice solves this problem.

    Salary sacrifice works particularly well for training because except in the most extreme cases, employees cannot claim a tax deduction for training costs that they pay personally but if the employer pays for training that is work-related:

    • the employer gets the tax deduction
    • the employee is not taxed on the cost and
    • there is no National Insurance to pay.

    EIM01210 confirms this.