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TAX NEWS: HMRC to standardise tax treatment of add-backs. By Nichola Ross Martin

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26th May 2006
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In a move to standardise the tax treatment of some add-backs for disallowed items, HMRC have announced that the informal practice by local offices of allowing agreed fixed scale add backs for private use of accommodation, facilities and food for hotel and guest house owners will now be stopped.

Many practitioners may not even realise that there was a practice by some local offices of allowing a fixed scale rate of add backs for proprietors in the any trade. The practice grew up out of common sense and necessity. Accurately apportioning the private use of shared facilities as well as services and food is never an exact science, particularly when there are family members in partnership or working along side the owner in the trade. Add this to the fact there is there is no such thing as a standard size or plan for a British owner-managed hotel or guesthouse, and it can be seen that it was quite an advantage to be able to agree a set figure with the local tax office, and to then be able to use this without further concern year on year.

I remember first reading about it in an article in a tax magazine in c.1992, and thinking what a fine idea it was. I was dealing with a B & B/guesthouse at the time, engaged to bring to a close a long running tax investigation which had reached a stalemate. One of the sticking points was what should be an appropriate add back for use by the owner and various staff members for private use of accommodation.
It transpired that the tax office dealing with the case had never heard of the practice either, but using the article as a basis for negotiation, we were able to agree the appropriate add back. To my knowledge, the guesthouse has continued using the scale we agreed then ever since.

The actual announcement made in the latest issue of Working Together reads as follows:

'Many guest house and hotel owners live on the premises. This means apportioning costs for the private use of accommodation, facilities and food. In the past a handful of Area Offices from the former Inland Revenue have agreed a fixed scale of add-backs with local hoteliers and tourist associations and tax practitioners, as a pragmatic approach. This has led to inconsistency across the country as each Area participating in these arrangements has set its own scales.
We will not disturb any arrangement that has been agreed for 2004-05 (Returns with a filing date of 31 January 2006) and earlier years. Area Offices which have entered into such arrangements with particular hoteliers, tourist associations or tax practitioners will write to explain that those arrangements are being withdrawn.'

This announcement will be rather irritating for those who have been used to slotting in a set and agreed figure into tax returns over the years. Now there is no alternative but to recalculate every year, and to also preserve the workings and basis to ensure that if there is an investigation in the future, the add-backs cannot be challenged. As these costs can be quite high, it is essential to spend some time in apportioning the relevant expenses.

If add-backs are challenged, then the Cost of Living index is quite a useful tool in working out the costs over a number of previous years. Like all statistics these need to be considered carefully, as there will always be variations on any average given.

Cost of living figures are published on-line and the Commissioners will generally accept these in the event that insufficient data is kept to record actual expenditure. This effectively means that a 'set scale rate' can be used, and to this end, it is a shame that HMRC do not feel inclined to publish and agree a universal rate for add backs, it would certainly reduce the opportunities for arguing about these sort of adjustments in the future.

Nichola Ross Martin

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By Malcolm Veall
30th May 2006 14:15

Not Standardised
Nichola,

Surely you mean that what standardisation is in place locally will be removed? The article content is the opposite of the headline.

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By AnonymousUser
30th May 2006 14:37

Apologies. The headline was ours, not Nichola's.

Steve Roth
Managing Editor
AccountingWEB

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By WIDGEY
28th Jan 2011 20:07

fixed scale add backs for private use of accommodation, faciliti

There were figures allowed up until 2008/2009, at least in Devon & Cornwall but does anyone know if they were available in 2009/2010? I have searched high & low but cannot find the aforementioned HMRC Board & Lodging Adjustments.

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