This rule is in VAT Notice 708 and is useful for Residential Property Developers.
Sections 6.3.2 and 6.3.3
You cannot normally zero-rate work to a property that has previously been lived in. The exception to this is where, in the 10 years immediately before you start your work, it has not been lived in and following the work it is ‘designed as a dwelling’ or intended for use solely for a ‘relevant residential purpose’.
If the property starts being ‘used as dwelling’ or for a ‘relevant residential purpose’ whilst your work is being carried out, then any work that takes place after that point is not zero-rated.
How do I know if the building has been unoccupied for 10 years?
You may be required to show that that the building has not been lived in during the 10 years immediately before you start your work. Proof of such can be obtained from Electoral Roll and Council Tax records, utilities companies, Empty Property Officers in local authorities, or any other source that can be considered reliable.
If you hold a letter from an Empty Property Officer certifying that the property has not been lived in for ten years, you do not need any other evidence. If an Empty Property Officer is unsure about when a property was last lived in he should write with his best estimate. We may then call for other supporting evidence.
‘Slice of the action’ contracts are so called because they confer upon a landowner (who holds the land as an investment) the right to share in the proceeds of any subsequent development by the purchaser. In these cases, the contract for sale of the land to a builder or developer provides for consideration that is, in whole or in part, contingent upon the successful development of the land.
A common arrangement is for the landowner to receive a fixed sum at the time of the disposal, plus a percentage of the sale proceeds of each building subsequently constructed by the purchaser on the land. [BIM60350]
‘Slice of the action’ clauses are also known as ‘Overage’ and ‘Uplift’ they are subject to anti avoidance rules because an advantage could be gained by the land owner being tax on the ‘slice of the action’ as a capital gain instead of being tax on it as trading income. There could be a difference of 25% tax between the treatments!
Often the vendor and their legal advisers are unaware of the anti-avoidance provisions for transactions in Land.
The provisions are drawn in very wide terms. Therefore, it is not possible to provide a summary of all the situations in which the rules are applicable, although there is a list of cases in which the rules should be considered in BIM60337.
There are, however, two common situations in which the rules are regularly invoked:
Its important that starting with the Heads of Terms the legal documents clearly show the intentions of the parties.
There is a formal clearance procedure available for taxpayers who think that these rules may apply to a proposed transaction or a transaction that has already taken place (see BIM60395).
HMRC must give the applicant a decision on the transactions in land clearance within 30 days. Therefore, any clearance applications received should be identified as such and sent to the Clearance and Counteraction Team for consideration as soon as possible.
Once HMRC give a clearance, the transactions in land provisions cannot be invoked in respect of that disposal in relation to that taxpayer.
In a ‘slice of the action’ contract (see BIM60350) the following legislation is normally relevant:
- S756(3)(d) ITA 2007 for individuals, trustees and personal representatives
- S819(2)(d) CTA 2010 (for companies)
Where either of these subsections is in point, part of the overall gain may be exempted from the transactions in land rules. The effect of the exemption is to take out of the calculation of the income to be charged so much of the gain as is attributable to the period before the intention to develop the land was formed. In other words allowing the gain to be taxed as a capital gain.
R&D Relief is a Corporation Tax relief that may reduce your company or organisation’s tax bill.
Alternatively, if your company or organisation is small or medium-sized, you may be able to choose to receive a tax credit instead, by way of a cash sum paid by HM Revenue and Customs (HMRC)
But your company or organisation can only claim R&D Relief if it’s liable for Corporation Tax.
The Small and Medium-sized Enterprise Scheme
This scheme has higher rates of relief. Since 1 April 2015, the tax relief on allowable R&D costs is 230% – that is, for each £100 of qualifying costs, your company or organisation could have the income on which Corporation Tax is paid reduced by an additional £130 on top of the £100 spent. It also includes a payable credit in some circumstances.
The Large Company Scheme
If your company isn’t small or medium-sized, then you can only claim under the Large Company Scheme.
Since 1 April 2008, the tax relief on allowable R&D costs is 130% – that is, for each £100 of qualifying costs, your company or organisation could have the income on which Corporation Tax is paid reduced by an additional £30 on top of the £100 spent. If instead there’s an allowable trading loss for the period, this can be increased by 30% of the qualifying R&D costs – £30 for each £100 spent. This loss can be carried forwards or back in the normal way.
Government Statistics show a steady growth in claims
Construction Examples of R&D
- The investigation into the removal of contamination from sites, including land remediation
- Advancements in structural techniques that aid construction relating to unusual ground conditions
- The innovative use of green or sustainable methods and technology
- Development or adaptation of tools to improve efficiency
- The use of new or unique materials, e.g. recycled products
- Improvement on existing construction methods or development of new ideas to solve ongoing issues related to the site environment or project specifications
- Innovative architectural design
IT Systems Examples of R&D
- The design, construction and testing of systems, devices or processes e.g. new hardware or software components, digital interface and control systems
- Integration of legacy and new systems e.g. following a corporate merger or acquisition, the adoption of an Enterprise Architecture or externally with partners in joint ventures
- Advances in network management and operational tools, development of wired or wireless technologies, designing mobile and interactive services, evolution of new generation network switching and control systems
- Data intensive activities e.g. the collection, storage and analysis, distribution and retrieval. Defining or working with new or emerging data models and metadata standards, integration with third party content
These examples and more are shown on the Cost Care Website
There are also examples by Industry on the Alma CG website
These are the key questions that you will be asked when requesting an R&D Tax Credit from HMRC:
- How was it decided that R&D had taken place
- A description of the scientific & technological advance sought
- The uncertainties involved
- How and when the uncertainties were resolved
- Why the knowledge being sought was not readily deducible by a competent professional
- Were any grants, subsidies or contributions received for the project within the claim
- Who owns the Intellectual Property of the products resulting from the R&D
- Was the R&D carried out for others ie clients, this could mean your claim is rejected
This HMRC Spreadsheet will help you calculate your Claim
Doctors 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 ( 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.