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.
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..
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.
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)
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.
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.
Mileage
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:
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.
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:
In April 2016 the PSA (Personal Savings Allowance) came into force.
The PSA applies to all non-ISA cash savings and current accounts, and will allow some savers to receive a generous portion of their interest totally free of tax.
95% of savings will no longer be taxed.
Basic rate taxpayers will receive £1,000 in savings income tax free, higher rate taxpayers get a band of £500 and additional rate tax payers get nothing.
Sounds great but the key word is ‘Interest‘
Some banks have been giving ‘Rewards‘ instead of interest and these fall outside of the scope of the new PSA and as such will be taxable, for example..
Landlords have been used to claim 10% of rental income as a tax deductible wear and tear allowance, but that will change in April 2016.
The Wear and Tear Allowance for fully furnished properties will be replaced with a relief that enables all landlords of residential dwelling houses to deduct the costs they actually incur on replacing furnishings, appliances and kitchenware in the property.
The relief given will be for the cost of a like-for-like, or nearest modern equivalent, replacement asset, plus any costs incurred in disposing of, or less any proceeds received for, the asset being replaced.
As the old rules apply until the 5th April 2016 it would be worth postponing any renewal purchase until after 6th April 2016, so you can claim a tax deduction in 2016/17.
It also worth noting that the old rules only applied to fully furnished property where as the new rules can be applied by any landlord who includes any items of furniture or equipment in their property.
The cost of the renewal is reduced by any sale proceeds for the item it replaces.
The NICs Employment Allowance was introduced in April 2014, for the purpose of supporting businesses and charities in helping them to grow by cutting the cost of employment. Eligible employers can claim the allowance, which reduces their Employer NICs bill by up to £2,000 a year. This is an ongoing allowance. Once an employer has claimed the allowance, they will continue to enjoy it in future years, without needing to do anything further. Over a million employers have benefited from the allowance since its introduction.
This measure will increase the Employment Allowance by £1,000 to £3,000 from April 2016. This means eligible business and charities will be able to claim a greater reduction on their employer NICs liability.
This is fantastic news for employers, but there is a potential sting in the tail.
HMRC plan to exclude one person businesses!
But many believe that HMRC’s plan won’t work because all you need to do is employ a family member or friend and then the one person should qualify for the allowance.
John Cullinane, CIOT tax policy director, said: “The government may find its plan to be ineffective in reducing employment allowance claims because it is open to abuse. It will simply have the effect of penalising single director-employee limited companies that are unable to, or do not know that they could, appoint another person as director or employee to claim the allowance.”
The governments’ plan is to restrict individuals on claiming mortgage interest as a cost against their property investment income, for individuals it will work as follows
2017/18 75% of the interest can be claimed in full and 25% will get relief at 20%
2018/19 50% of the interest can be claimed in full and 50% will get relief at 20%
2019/20 25% of the interest can be claimed in full and 75% will get relief at 20%
2020/21 100% will get only 20% relief
For a 20% tax payer that’s fine but for higher rate taxpayer its a disaster that will lead to them paying a lot more tax
These rules will not apply to Companies, Companies will continue to claim full relief.
What could a Property Investor do to reduce the impact of these changes?
Here are a few ideas….
Pension Contributions – Pension Contributions currently receive tax relief at your rate of tax – 20% to 45% – so if you are a 40% tax payer you would need pay half the value of your 20% restricted interest into your pension to mitigate the extra tax
Change of Use – would your Buy to Let be able to be converted to a Furnished Holiday Let? or anther type of commercial property on which the restriction won’t apply
Increasing the Rent – Could you charge more to cover the extra tax?
Spouse Income Tax Elections – If the property is jointly held HMRC assume a 50/50 split of the income but you can change that using Form 17 this might be useful if one of you is a basic rate taxpayer and the other a higher rate taxpayer
Tax Deductible Expenses – Many landlords overlook expenses at the moment but they could become a lot more important, for example, use of your home, motor expenses, computers, travel and subsistence, phone costs etc
What do you plan to do when the changes take effect?
There are many reasons why residential property investors are now rushing to incorporate, the biggest reason being the Restriction of Mortgage Interest Tax Relief.
Clause 24 of the Finance Bill sets out plans is to restrict individuals on claiming mortgage interest as a cost against their property investment income, for individuals it will work as follows
2017/18 75% of the interest can be claimed in full and 25% will get relief at 20%
2018/19 50% of the interest can be claimed in full and 50% will get relief at 20%
2019/20 25% of the interest can be claimed in full and 75% will get relief at 20%
2020/21 100% will get only 20% relief
For a 20% tax payer that’s fine but for higher rate taxpayer its a disaster that will lead to them paying a lot more tax
These rules will not apply to Companies, Companies will continue to claim full relief.
When you sell or give a residential property to your Company you will incur Capital Gains Tax if you make a gain, its for this reason many investors and their advisers believe that they are ‘automatically’ entitled to claim Incorporation Tax Relief, but in many cases Incorporation Tax Relief will NOT be available!
In summary Incorporation Tax Relief allows Sole Traders to postpone/hold over a gain by transferring all their business assets into a limited company in return for Shares.
The key problem area is the Property Investment is generally not considered to be a Trade.
Mrs Ramsey arranged and attended to maintenance issues (drains)
Mrs Ramsey and her son maintained the garages and cleared rubbish
Mrs Ramsey dealt with post
Mrs Ramsey dealt with fire regulation issues
Mrs Ramsey arranged for a fence to be erected
Mrs Ramsey created a flower bed
Shrubs were pruned and leaves swept
The parking area was cleared of weeds
The flag stones were bleached
Communal areas were vacuumed
Security checks were carried out
She took rubbish to tip
She cleaned vacant flats
she helped elderly tenants with utilities
This work equated to at least 20 hours per week and Mrs Ramsey had no other employment.
It is because she did the work herself that her property investment was considered a ‘Business’ and eligible for Incorporation Tax Relief. In summing up the Judge said…
If Mrs Ramsay had employed a Property Management Company or Letting Agent to do the work she would NOT have been able to claim ‘Incorporation Tax Relief’.
Most Buy to Let Landlords with one or two properties are Passive Investors who delegate all the responsibilities to professional letting agents, they will not be doing enough to comprise a business!
