Relief for accomodation - temporary work location

Relief for accomodation - temporary work location

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Good Morning

I need some ammunition to combat a particularly intransigent HMRC officer.

My client is a senior officer in a large international company. He handles multi-million pound contracts with international client companies such a Nokia. He lives in the north of England and works from home part of the week and in London (where the head offices of such companies are) a couple of days per week. Rather than stay in hotels he rents a flat where he can entertain clients and discuss the fine detail of contracts or quotes in confidence. It also saves him carrying the things he needs between the two cities every week and it is cheaper so it makes sense.

The Revenue are saying that these costs are not allowable expenses which for me flies in the face of common sense. Does anybody know of similar circumstances where the costs have been allowed? Tribunal decisions? anything I can use to counter the arguments of the Revenue?

Grateful for any support and thanks in advance

John

Replies (26)

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By User deleted
08th Aug 2015 14:06

Agree

Can't think of any good reason for the company being denied relief for providing a taxable benefit to an employee.

 

EDIT: Or did you mean he pays for it himself, in which case it's not obviously an expense wholly, exclusively and necessarily ...?

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By Steve Kesby
08th Aug 2015 14:25

See EIM31836

http://www.hmrc.gov.uk/manuals/eimanual/EIM31836.htm

However, I suspect that HMRC are coming at it from the perspective that London is a permanent workplace.

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By User deleted
08th Aug 2015 15:59

@Basil

Whilst the facts may look similar that case may not be relevant since it was about whether it was allowable under s.34 ITTOIA/05. Further, on appeal the UT didn't agree with the FTT decision. Here the OP is acting for an employee where, presumably, the question is whether the expenses incurred met W+E+N condition.

I'm inclined to agree with Phil Yaboots.

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By thehaggis
08th Aug 2015 17:15

Temporary Workplace

I think the OP is querying whether the employee should obtain relief for accommodation at a temporary workplace.

Travel to London would almost certainly be counted as ordinary commuting because it is between his home and a permanent workplace.  It follows that the cost of accommodation to be at or near a permanent workplace would not meet the test.  Which is a rather common sense approach.

 

 

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By Steve Kesby
09th Aug 2015 10:23

I may agree with thehaggis

The wholly, exclusively and necessarily test from s 336 certainly isn't relevant. The OP concerns employment expenses within s 338, and whether or not they are deductible turns on whether London is a permanent workplace in relation to the employment.

Unlike thehaggis, I do not believe that there is enough in the OP to determine that though. It depends on what exactly "[he] works from home part of the week and in London...a couple of days per week" really means in practical terms.

A permanent workplace can be an area (s 339(8)), or a journey that is substantially the same as an ordinary commute is treated as being an ordinary commute (s 338(2)), so if London or a place in London is a permanent workplace, the expenditure is not deductible (from the employment income).

On the basis that there is nowhere in London that is visited regularly and forms the base for the employment, or is where the employment duties are allocated (s 339(4)), then we are within the 24 month/40% rule of s 339(5)-(6).

London will be a permanent workplace if attendance there is in the course of a continuous period of employment lasting (or expected to last) the lesser of 24 months and the entirety of the employment(s 339(5); the 24 months part of the rule).

For the above purpose an employee is considered to have a period of continuous work at a place if they are performing their employment duties at that place to a significant extent (s 339(6)). HMRC us an acid test of 40% (of working time) as being "to a significant extent",

If the test in s 339(4) is not satisfied, and we assume that the situation continues (or will continue) for at least 24 months (or the entirety of the employment), then whether the expenses are deductible will turn on whether the employment duties are being performed in London to a significant extent.

If less than 40% of working time (on average) is being worked in London, then the expenses should deductible by authority of HMRC's internal instructions at EIM31836, and HMRC's 40% test in EIM32080. If only marginally more than 40% is being spent there, it may be possible to argue that it is not significant, as the 40% is not statutory (although I wouldn't hold out much hope; it does seem quite a generous view of what is significant).

For the avoidance of doubt, when I say that the expenses are deductible, I do mean from the employment income, such that any benefit arising (if the employer funds or reimburses the expenditure) is negated. All costs paid by the employer will be deductible as either remuneration or expenditure otherwise allowable in its own right.

I see that the Healy case has also been mentioned. As has been noted, this was a self-employment case. The UTT didn't disagree with the FTT decision though, the case was remitted back to the FTT to find more facts, and on doing so, the FTT concluded that the expenditure was not allowable.

That was ultimately because Tim Healy had chosen a flat with a spare bedroom though, to enable guests to come and visit him there, giving the expenditure duality of purpose, incapable of apportionment.

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By thehaggis
09th Aug 2015 14:36

@Steve K

I agree that more information is, as always, required to reach a definitive conclusion, but we can only go on what we have been given.  Your analysis is slightly wrong because you have overlooked the first test to be applied.

A permanent workplace is a place where an employee attends regularly (which he does), and is not a temporary workplace. We are not therefore looking to establish a permanent workplace; we are looking to establish a temporary workplace.  You have only looked at 339(4) and (5), but these are first dependent on 339(3) first being met.

The first test is whether he attends London for the purpose of performing a task of limited duration, or for some other temporary purpose (s339(3)).

It seems to me that the meetings in London are an intrinsic part of his duties, therefore the travel is not to perform a task of limited duration nor for any temporary purpose.  The 24 month rule and significant extent rule are irrelevant if this first test is not met.

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By Steve Kesby
09th Aug 2015 14:56

My interpretation of the OP...

... was that the purpose of the trips to London were for non-routine meetings with clients. So I had moved directly to the premise that it was a temporary workplace if it wasn't a permanent workplace to reduce the length of my post.

When I meet with clients I am most certainly performing tasks of limited duration, even though they are an intrinsic part of my duties. This may have coloured my view somewhat.

However, I do agree with all of your comments other than in respect of our differing interpretations of the OP.

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By User deleted
09th Aug 2015 15:17

Rubbish!

My original comment was rubbish - although I think my conclusion was right (insofar as it's possible to exactly determine the individual's working pattern).

 

The OP said "He ... works ... in London (where the head offices of such companies are) a couple of days per week".  I agree with thehaggis's interpretation.

 

 

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By thehaggis
09th Aug 2015 16:13

Yes, but..

.. not if you travelled to the same place 2 days every week.

For example, if you are an employee and have offices in Leeds and Sheffield, spending equal time in each to meet clients, neither of those locations will be a temporary workplace.

The exception would be if your attendance at one of the offices was limited by time: such as you were asked to cover in that office of a period of time, such as 3 months or 3 years (there is no upper limit as long as it does not comprise all of the period of employment). In those circumstances the 24 month rule would apply, so three months would be OK, but 3 years might not be, unless you spent less than 40% of your time there.  If you were asked to spend one day a week in the other office for a period of 3 years it would be a temporary place. If you were asked to spend one day a week there for an indefinite period, it would not be a temporary place.

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By Steve Kesby
09th Aug 2015 16:57

Now I do disagree

Your Leeds and Sheffield example is incorrect. One must first look at purpose (s 339(3)), rather than simply the amount of time spent working at a place.

If I ordinarily work in the Leeds office and routinely go to the Sheffield office for the purpose of meeting clients (or staff in the Sheffield office), then I have gone there for the purpose of performing one or more tasks of a limited duration.

The fact that I might then go in at 9 and do 1½ hours work there before a meeting from say 10:30-12:00, does not change that purpose. Neither does the fact that, as a result of such actions, I might end up spending half of my time there (it may cause it to become a permanent workplace under the 24 month rule though).

Similarly if ordinarily I work at home in York, but routinely go to both the Leeds and Sheffield for the purposes of meeting clients or other staff at offices there, perhaps doing other work at those places simply to make practical use of my day, then I have also gone there for the purpose of performing one or more tasks of limited duration.

Meeting and entertaining clients are (virtually by definition) the performing of tasks of a limited duration. If those meetings are the purpose of the attendance at the place, then you have a temporary workplace by default and you have to look at the tests in s 339(4) onwards to establish whether you have a permanent workplace.

And it seems to me, from the limited information provided in the OP, that those are the tests in point in this instance.

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By User deleted
09th Aug 2015 17:58

Unbelievable that HMRC/legislators can make such a shambles of prescribing the tax treatment of, what I am sure is, a relatively common situation.

 

What on earth is "a task of limited duration" (S339(3)(a)) in the context of an employment?  How widely or narrowly is that to be interpreted?  How does "a task" contrast with " the duties of the employment"  (S339(4)).  Surely " the duties of the employment" consist of various "tasks" so carrying out a task appears to be one of  " the duties of the employment"!  Is any task not, by definition, "of limited duration"?

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By Steve Kesby
09th Aug 2015 19:14

I don't think it's shambolic

The duties of an employment are, as you sat, usually to perform a series of tasks, but some tasks are going to be more ongoing than others by their nature. Meetings though are by their nature tasks of limited duration.

S 339(3) simply poses the question, "is the purpose of the attendance at the place (which is at least at one end of each journey with which section 338 is concerned) to perform the duties of the employment generally (including both tasks of limited duration and ongoing tasks), or is the purpose of attendance just a temporary one (ie for specific meetings).

I think s 339 only weeds out the real permanent workplaces, which I do accept can be more than one in number.

The remainder of s 339 is then there to catch things that are more at the margins.

I think if s 339(3) were more narrowly defined (including a definition of task, or task of limited duration) we would lose wriggle room in all cases, and not just cases at the margins.

I also think that if I had a client that was based in Northern England, but who routinely had to meet with clients in London, and so arranged a number of meetings over a two day period each week, I'd be inclined to see how far I could push those margins in the client's favour. I think that's what they pay me for.

That having been said, I do think that the OP maybe sufficiently close or beyond the margins that they may have trouble, but we are low on specifics.

I have also now seen a potential disallowance in the OP; either for an employment expense for the employee or for a trading expense for the employer. There is a choice as to who suffers the disallowance, if it applies. One might, however, argue that being able to entertan clients at the flat (in place of a hotel) is an incidental effect of the expenditure, and is not its purpose, just as would be the case if he stayed at a hotel and then entertained them in the hotel bar/restaurant. Obviously the direct expenses of the entertaining would not be allowable.

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Replying to lionofludesch:
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By User deleted
09th Aug 2015 20:12

My view

Steve Kesby wrote:

The duties of an employment are, as you sat, usually to perform a series of tasks, but some tasks are going to be more ongoing than others by their nature. Meetings though are by their nature tasks of limited duration.

 

It really does depend on what you define as a task.  You could say, the monthly payroll is a task.  You could say the annual payroll is a task.  Everything, apart from time itself, is of "limited duration"!

You could visit an office monthly to carry out staff one-to-ones.  Now is each one-to-one a time-limited task or do I look at the whole annual performance appraisal process as "the task"?

 

I don't think we disagree, you obviously know what you are talking about and we don't have the full facts but I would dispute whether the legislation is "clear"!

 

By the way, my experience is that some meetings certainly don't feel like they are of limited duration!

 

 

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By thehaggis
10th Aug 2015 00:06

I Don't Disagree

My example was not a good one.

It might have been better to imagine a scenario where a person was required to work in both the Leeds and Sheffield Office. Perhaps the person managed a team in each, and spent time equally between them. In those circumstances neither would be a temporary workplace.  But that is probably too far removed form the OPs situation to be of use.

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By Steve Kesby
10th Aug 2015 10:54

An example possibly closer to that of the OP

I recall having a PAYE visit for a client, in the days when such matters were dealt with by individual tax districts. It was a client based in London, and we were arranging for the PAYE visit to be at our office in London.

The tax district was one of the London Provincial XX districts. The chap doing the PAYE visit was based in Glasgow/Edinburgh. I had to get the visit rescheduled for some reason, and he explained that he flew down to London for a week a month, and carried out all of his visits for the month in that week.

As a result of us rescheduling, it meant that we had to arrange it for the week that he would be in London the following month.

Now, I suspect that he stayed in an hotel, but if there were say 4 people in his team, who perhaps alternated weeks a flat would have made more sense.

Nonetheless he flew to London for a week each month, and nowhere else.

At first blush, this seems to fit within the comments made at the foot of EIM32080 regarding the Dolgellau (food scientist) example (at EIM32087).

The PAYE visiting officer situation is different though (IMHO), as he was going to London to perform tasks of limited duration (albeit a series of them), rather than going to Dolgellau (or Leeds and Sheffield) to perform the duties of the employment generally.

S. 339(3) is there to strip out obvious permanent workplaces, and the test is the purpose of attendance. The PAYE visiting officer came to London only for the purposes of performing his PAYE visits here. He might have brought other work with him to do between visits, and on the lonely evenings in his hotel, but that doesn't colour the purpose of his attendance in London.

I expect he'd have been really hacked off to have been taxed on the costs of his flight and hotel.

Turning back to Phil's comments, and taking the example of a quarterly VAT Return. If you had an employee that did most of their work at home, but for practicality has to venture into the office once a month to do the VAT Return, which takes three days. That is attendance for the purposes of performing a task of a limited duration, and isn't (IMO) caught by s. 339(3). It probably gets caught by s. 339(4) though, subject to circumstances.

If the requirement of the employer though was attendance at the office for a period of 3 consecutive days per month, over which it is understood that any necessary meetings will take place, and which the employee uses as an opportunity to do the VAT Return, that changes the purpose of the attendance to one that is for the general purposes of the employment, which isn't coloured by the fact that only tasks of limited duration are performed whilst there. Equally though, it is no more or less caught by s. 339(4).

It is certainly the case that if you can escape ALL of the tests of s. 339(3) to 339(5)-(6), as modified by s. 339(7)-(8), where appropriate, nobody would dispute that you have a temporary workplace.

If you can escape the tests in s. 339(4) and s. 339(5)-(6), as both modified by s. 339(7)-(8), where appropriate, there is a very good chance that s. 339(3) will also not be in point. It does need to be lose enough to wriggle in, in my view.

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John Stokdyk, AccountingWEB head of insight
By John Stokdyk
10th Aug 2015 12:40

Might the contract of employment be any help?

As someone who works from home and regularly attends head office for meetings and the like, the terms of my travel arrangements are set out in my contract.

A similar reference in the client's contract might provide evidence to support the claim for tax relief (or scupper it...?)

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By darrenwilliams
14th Aug 2015 11:39

I don't think anyone has picked up that the OP does not say that his client operates as a Limited company therefore I would say that he could be self employed.

 

I think I would probably say if self employed then it maybe not allowable, as he is travelling to a 'patch'(see case law). But not enough detail given above to know really.

 

However if he trades as a  Limited company and the contract is in the company name, then the company can claim a CT deduction but the employee may or may not have a taxable benefit based.

 

OP is the person self employed ? or if a Limited company was the rental contract in company name ?

 

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By Cirius di Lemma
14th Aug 2015 11:44

The OP's client...

... is "a senior officer of a large international company".

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Replying to Anonymous.:
By cheekychappy
14th Aug 2015 11:52

Still not conclusive

Cirius di Lemma wrote:

... is "a senior officer of a large international company".

 

I've had self-employed cleaners describe themselves as CEO of ABC Cleaning.

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Replying to The Innkeeper:
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By Cirius di Lemma
14th Aug 2015 11:57

Ridiculous

cheekychappy wrote:

Cirius di Lemma wrote:

... is "a senior officer of a large international company".

I've had self-employed cleaners describe themselves as CEO of ABC Cleaning.

Would ABC Cleaning be a large international cleaning company, with multi-million pound cleaning contracts with international companies such as Nokia by any chance?

What a ridiculous thing to say. Is it National Stupidity Day, and I missed it?

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By pennylj
14th Aug 2015 12:08

EIM31664 may be worth a look? 

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By cheekychappy
14th Aug 2015 12:09

That's the one!

 

It was tongue in cheek. Never mind.

 

No it isn't National Stupidity Day. But it clearly is Head Up Your Own [***] Day. Pull it out quick before it gets stuck permanently.

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By User deleted
14th Aug 2015 12:17

.

cheekychappy wrote:

Pull it out quick before it gets stuck permanently.

 

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By ChrisHughes
14th Aug 2015 12:51

A simpler solution

Wouldn't it be simpler for the company to rent the flat! Then the company could class this as a business expense for use by staff who have to visit the company's head office whether on a regular basis or for the odd meeting etc. etc.

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By susanna russell-smith
14th Aug 2015 13:07

@ChrisHughes

Exactly!!! Surely, if it's a large international company, other staff need to be in London from time to time?

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By JCresswellTax
14th Aug 2015 14:36

Are you forgetting

About the benefit in kind situation if you do that?

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