working from a home office

working from a home office

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There have been thousands of words written by many tax experts on accounting web in the last few weeks on this very topical issue. I am trying to ascertain the tax implications of a scenario I have encountered several times in the last few weeks. The directors/owners of a professional services company want to work near home in line with goverment advice. They have relatively large gardens and are prepared to let their company rent land from them in order to provide space to erect an office . This office may be a moveable pod like an upmarket portakabin or it may be fixed and plumbed in it - it may be temporary it may last many years. The company pay the directors rent for the use of the land then the company pays for the office construction. I am not concerned by the loss of PPR issue, just whether a taxable benefit in kind has arisen for something that may well be of no personal benefit.

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RLI
By lionofludesch
15th Oct 2020 17:22

Benefit in kind on what ?

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By The Dullard
16th Oct 2020 10:23

There is a benefit whenever the law says there is a benefit and whenever there is a benefit; a situation that the law specifically says that there is a benefit.

The value of your house goes up because it now has a fancy outbuilding which your company paid to construct, there is a benefit.

You have an asset, like a "pod" available for your private use, whether or not you actually use it privately, there is a benefit.

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By paul.benny
15th Oct 2020 17:31

Exactly. Where's the benefit?

The rental is, of course, taxable in the hands of the homeowner(s). And if the property is mortgaged, the lender may have concerns about the lease.

As the director is now working from premises leased by the company rather than working from home, both property and liability insurance may be an issue.

Can't comment on whether there are any SDLT implications

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By Tax Dragon
15th Oct 2020 17:46

Is the tenant going to return the land to the freeholder in the condition in which it took it over?

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By unearned luck
15th Oct 2020 23:38

The first thing is to assess the degree of affixation but even if its a fixture it might be a tenant's fixture which means something the tenant can take away at the end of the tenancy without causing too much damage to the thing and the land and making good any damage to the land. There will be a BIK from day one if the director's land has been improved by the company's expenditure.

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Replying to unearned luck:
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By whitevanman
16th Oct 2020 10:07

As you know, there have been several similar threads recently and none has really got to an "answer". This, I think, is a further effort by Nick to get such.
In that context, you say there is a BIK from day 1.
I am sure it would help matters greatly if you could say what that BIK is, what particular facts lead to that conclusion, under which sections it "arises" and how it is calculated.

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By nick farrow
16th Oct 2020 09:56

thank you - it is quite possible that the landlords' garden has been devalued by erecting a portakabin in it - they may have entered into the licence agreement as a commercial necessity and the tenant may be contracted to remove or sale the structure to the landlord once vacated

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By Tax Dragon
16th Oct 2020 10:17

Let me ask my question a different way: is the agreement with this tenant different in any way from what it would have been with a third party that wanted to use the director's garden as a pseudo business park?

As soon as you wander away from third party terms and conditions, you wander into possible tax consequences*. And I put it to you that one of the things you would absolutely make sure you knew, if you were dealing with a third party, was whether they would give you back what you had, or, conversely, if they were building a permanent structure, whether you would have to make any contribution to their cost, whether that be when they vacated or otherwise.

*Post Apollo Fuels (and subsequent changes to the BIK code), you can even have BIKs when you have arrangements on third party terms. But can we leave that point on the back burner for a moment, as first we need to identify, as wvm says, the relevant provisions, and what those are depends on the arrangements in play.

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paddle steamer
By DJKL
16th Oct 2020 10:18

You would also, with a third party, need to address rights of access and egress, use types and hours of use, responsibilities for upkeep/repair and a fair few other matters that would arise (like rent reviews/insurance/irritancy) were you leasing to a third party.

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By The Dullard
16th Oct 2020 10:33

It depends. If you add a building to the land it becomes the landowner's and potentially adds value to the freehold interest, giving rise to a benefit, and cost is calculated as being the cost of providing the value enhancement. That was the decision in Denny.

Put a "pod" on the land as per the article referred to in the other thread, then there is an asset benefit, to the extent that the asset is AVAILABLE for private use.

The article linked in the other thread (which became too unwieldy to follow sensibly, due to the 5h1te format) suggested that you could attibute all to business use, but that isn't the test. The pod is available for private use, whenever it is available for use. If the director wants to pop out to his man cave in the back garden for a quick w**k without the missus knowing, and on his way realises that his man cave isn't there any more, because it's been replaced by a "pod", where's he going to go to spank his monkey?

The point not referred to in the article is that the exemption in s 316 probably applies in the pod situation.

And to answer (again) Nick's question, in the other thread, whether s 365 can be used. The answer (as TD had said previously) is no, because you still need to satisfy the expenses test of wholly, exclusively and necessarily IN THE PERFORMANCE of the duties, and the provision of the office merely takes you to a place where you are able to perform your employment duties.

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By Tax Dragon
16th Oct 2020 11:11

Breaking my own suggestion, because I think this is a key point that Nick has missed (more than once):

The Dullard wrote:

And to answer (again) Nick's question, in the other thread, whether s 365 can be used. The answer (as TD had said previously) is no, because you still need to satisfy the expenses test of wholly, exclusively and necessarily IN THE PERFORMANCE of the duties, and the provision of the office merely takes you to a place where you are able to perform your employment duties.

Nick misquoted (somewhere) "IN the performance" as "FOR the performance". In and for are different words with different meanings. The "in" test is hard to meet - and case after case has been lost because of it. (HMRC and the courts understand "in" very well.)

(The s365 question is relevant in the removable pod scenario, not in the outbuilding scenario. The reason for my questions above was to narrow the conversation to one scenario at a time.... I've failed in that objective.)

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By The Dullard
16th Oct 2020 11:29

The removeable pod scenario should fall within the s 316 exemption, because the test there is whether it is" used in" the performance of the duties (ie essentially a "for" test), as long as any actual private use/mixed use is not significant, which I think Nick is claiming.

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Replying to The Dullard:
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By Tax Dragon
16th Oct 2020 11:38

I'm not so sure - see s316(5).

However s316 does answer paul.benny's question about having a key to the office.

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By The Dullard
16th Oct 2020 11:52

You're referring, presumably to 316(5)(b) and I don't think the "pod" is any of the things mentioned.

Obviously, you can cross words out and make 316(5)(b)(ii) read "the construction of a[n] other structure", but by just crossing words out you remove context. A portakabin is not an other structure capable of being extended, converted or altered within the meanings that they have in the context of a building. You can just assemble (construct) it and disassemble (deconstruct) it, and I believe that they are usually delivered pre-assembled.

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By Tax Dragon
16th Oct 2020 12:12

So if the pod is delivered assembled, you think it's exempt; if it comes prepacked and is assembled in situ, you think it's taxable?

Hm.

If you're right (which I'm not convinced about, since your sentence starting with "obviously" seems to point the other way... actually I'm confused by what you mean... have you crossed out the statutory "or"?), but if you're right, then maybe that's the tax planning tip Nick's been looking for - get your pod delivered pre-assembled.

Oh and don't plumb it in or anything silly like that.

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Replying to Tax Dragon:
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By The Dullard
16th Oct 2020 13:02

You're going to need to explian to me, do you think a pod/portakabin is a building or a structure. I think , in the context of things being constructed, extended, converted or altered, it is neither.

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Replying to The Dullard:
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By Tax Dragon
16th Oct 2020 14:21

What you said was

The Dullard wrote:

Obviously, you can cross words out and make 316(5)(b)(ii) read "the construction of a[n] other structure". You can (construct) [a Portakabin].

Forgive my crossing out your words, I was merely trying to clarify the context.

If I can construct a Portakabin, then I can construct, extend, convert or alter it. That's what "or" means. It may be harder to construct, extend, convert and alter it, but that's not the condition.

(And I wasn't crossing out... I was honing in. Credit to Basil for that Aweb lesson.)

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By The Dullard
16th Oct 2020 15:18

That was my point though. I don't think you can extend, convert or alter it.

And then the implication of the words "or other structure" are that a building is a structure (as do the words "other than a building" in CAA 2001, s 22(3)). And as in CAA 2001, s 22 a structure on land should also be taken to be a FIXED structure in s 316(5)(ii), particularly given (i), in my opinion.

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Replying to The Dullard:
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By Tax Dragon
16th Oct 2020 15:47

OK, got you. The meaning of 'structure' (in that context) was the subject of a discussion in here (possibly even going back to the days of Ruddles and PNL... though it might have been Wilson and me, I forget).

IIRC, the answer was "no-one knows". I'm happy that, if the company rolls a caravan into the back garden, the benefit is not excluded per s316(5). I'm happy that a brick-built office doesn't come into these rules. Somewhere in between, there may be a band coloured grey. (I think it is possible to have an asset that would be within s205 and not exempted by s316 because of s316(5).)

Going right back, I think it was Steve Kesby provided some analysis on matters that, as you say, may well be related. CAs on storage units, that kind of thing.

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Replying to Tax Dragon:
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By ShayaG
19th Oct 2020 16:28

I don't think a purposive reading of the legislation would be so narrow as to exclude a caravan emplaced in a back garden if it was capable of being "enjoyed" with a domestic residence, for example as a conservatory or garden shed type structure, regardless of how it got there. The issue Parliament seems to have been addressing is that when you provide such a structure "adjacent to and enjoyed with" a private residence then the distinction between the business and private enjoyment of that structure is impossible to sensibly legislate for, as nobody would ever know, possibly including the tax payer - no meaningful distinction can be drawn between use as an office space and use as a wo/man cave. I would say that in this context, parking the caravan in its position for long term use could be deemed its construction.

Of course some structures are not enjoyed with a house- for example, if this caravan was less than picturesque and full of tools used by a motor mechanic in the course of his trade and was not configured in a way compatible with domestic use then I agree that it is not an excluded benefit and would not be taxable.

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By Tax Dragon
19th Oct 2020 17:20

Interesting.

So maybe a caravan wasn't the best example? But maybe not because of the purposive interpretation of s316(5)(b)(ii) you suggest [while I think I see your point there, it is clearly at odds with The Dullard's reading], but because caravans are designed for domestic use (you live in them, even if - hopefully - only temporarily). s316(5)(b)(i) talks about "the extension, conversion or alteration of living accommodation"; rolling additional living accommodation into your garden might well be caught as an "extension" of living accommodation, even if you actually use it as an office.

The context that The Dullard found about an "extension" being to a building is embedded in (ii) and cannot be read into (i). So maybe (i) is a tougher test to get past than (ii)? (You obviously have to get past both, and that might no be so easy.) (I'm annoyingly tired for a Monday. Had a barney last night and I'm not thinking straight today. So, please, y'all, forgive anything particularly stupid I've said today.)

As a complete aside, when is the last time anyone here had a look at the Portakabin website? Quite impressive bits of kit. Not just tin cans in backyards.

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Replying to Tax Dragon:
RLI
By lionofludesch
19th Oct 2020 17:28

Tax Dragon wrote:

As a complete aside, when is the last time anyone here had a look at the Portakabin website? Quite impressive bits of kit. Not just tin cans in backyards.

I've a client who has four inside his business park unit. A mess room for the lads, an office on top of that with a proper staircase leading up to it and a double unit which he uses as a showroom. I'd actually question the earlier suggestion from, iirc, Dulls, that these units can't be added to.

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By Tax Dragon
16th Oct 2020 10:22

Can I suggest that, in order to stop the format destroying this thread, we bypass it - reply at the top (which is really the bottom), not to comments.

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By The Dullard
16th Oct 2020 10:29

Of course you can suggest it. :)

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By nick farrow
16th Oct 2020 10:39

in this hypothetical situation the landlord & tenant have a put and call option for the structure to be sold to the landlord at the lower of original cost v market value on vacation (as an office)

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By The Dullard
16th Oct 2020 10:43

Is this hypothetical structure fixed to the land? if so, it's already the landlord's as soon as the tenant vacates. If not there is an asset AVAILABLE for private use (whether or not it is in fact so used).

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By paul.benny
16th Oct 2020 10:59

Surely that depends on the terms of the lease. The tenant/licensee may have an obligation to return the land to its original state and therefore the structure never becomes the landlord's.

As I have a key, I can visit my employer's premises any time. There is no suggestion of a bik arising from that. Doesn't the "available for private use" benefit only apply to vehicles?

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Replying to paul.benny:
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By The Dullard
16th Oct 2020 11:37

Not any more. They have changed s 205 and the test is now availability for private use, but see my point about the s 316 exemption.

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By nick farrow
16th Oct 2020 10:39

in this hypothetical situation the landlord & tenant have a put and call option for the structure to be sold to the landlord at the lower of original cost v market value on vacation (as an office)

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paddle steamer
By DJKL
16th Oct 2020 10:47

As a complication does the company tenant have an obligation to construct said structure in terms of its lease of the land, could that obligation to construct be a deemed premium assessable on the landlord?

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By nick farrow
16th Oct 2020 11:19

not an obligation just an understanding that this how the tenants will use their right to occupy the land

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By nick farrow
16th Oct 2020 11:19

not an obligation just an understanding that this how the tenants will use their right to occupy the land

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By whitevanman
16th Oct 2020 12:00

Agree TD's suggestion re "format" issue. This post is largely a response to The Dullard's comments at 10.17.
In what way does it increase the value of the freehold if you erect a building on the land? It is a question of fact whether it does so (remember my comments about proprietary estoppel?).
I don't agree that Denny set any new rule (as seems to be suggested). Rather, it was simply an application of the law to the specific cae. It is not a very good case, IMHO. I indicated in a post on the last thread why I consider that to be so.
To expand, suppose the arrangements in Denny were entered into a year ago and the case went to Tribunal tomorrow (pure fantasy, I know) how would the benefit have been calculated? Why in fact, would there have been such? The company actually occupied the office for 10 years and got back (so it seems) most of its cost. The decision was actually made at a time when the occupation had ceased, the property sold, reimbursement made and all figures known. It is highly unlikely that a similar set of circumstances would ever, again, arise.
There is a big clue in the term BIK, the B refers to Benefit and without such there is no charge (there are I think 3 specific exceptions that are in legislation). In Denny it appeared from the figures that there had in fact been a Benefit and that was what judge Hillier decided was assessable.
If I lease some land from you, for say 10 years, and build an office on it, you do not benefit. Your asset has not increased in value. You cannot lease it to someone else. You cannot charge me more. Nor can you speculate about what might happen in 10 years time. I might knock down the office (for example).
So, depending on the precise facts and agreements, there may indeed be no B. and no BIK.
As regards the "availability" issue, again it is a question of fact. Is the pod etc available for private use? In what way? What restrictions might there be? Not sure I would like to convince the Tribunal that it should be considered to be available for private use on the grounds that the director might use it for self-pleasuring. Not sure (don't want to know) what "evidence" there might be of such use.
At the extreme, one could argue that every company asset is available for the private use of the director (especially a one man band) but it would be a very unusual stance for HMRC to take. The exemption in S316 might be precluded by S316(5) depending on the facts.

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Replying to whitevanman:
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By Tax Dragon
16th Oct 2020 12:20

whitevanman wrote:

Agree TD's suggestion re "format" issue. This post is largely a response to The Dullard's comments at 10.17.

Which comments were edited at 10:33 (for the benefit of anyone who does try to read this thread cold). There must be a better format - but you have exposed a weakness in my suggestion (whilst editing remains an option).

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Replying to whitevanman:
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By Tax Dragon
16th Oct 2020 12:50

.oO Stupid format.... thank you Sift for the ability to edit! :-p

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By The Dullard
16th Oct 2020 13:15

Denny, particularly when then taken with Apollo Fuels (which does set a precedent) is of wider application than you suggest. And Charles Hellier is a highly respected UTT judge, who most notably for me, absolutely nailed the law on PILONs in SCA Packaging (an SPC case). I think that the Denny decision will be taken as persuasive by many, particularly HMRC.

And all company assets of a one-man band are, as a matter of fact, available for private use, and that availability is a benefit even if there isn't any such use. It's left up to the ingenuity of the individual how they might use some things privately and they are available for that ingenious use as a matter of fact. That is why the s 316 exemption is there.

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By Tax Dragon
16th Oct 2020 12:35

whitevanman wrote:

In what way does it increase the value of the freehold if you erect a building on the land?

Is that the test?

whitevanman wrote:

There is a big clue in the term BIK, the B refers to Benefit and without such there is no charge (there are I think 3 specific exceptions that are in legislation).

But "benefit" is not restricted to "financial benefit". (Hence my previous question.)

whitevanman wrote:

At the extreme, one could argue that every company asset is available for the private use of the director (especially a one man band).

I have this concern. Remember the antique car dealer that popped in here a few weeks back? What actually was there to stop a BIK on each and every car?

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By The Dullard
16th Oct 2020 12:57

If you've got additional buildings in your garden, estate agents would say you (or rather your house) has a benefit.

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RLI
By lionofludesch
16th Oct 2020 13:01

Or an eyesore.

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By The Dullard
16th Oct 2020 13:04

Oh, I love Winnie the Pooh!

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By Tax Dragon
16th Oct 2020 13:03

@the initial "what benefit?" responses:

There's a benefit in not having to commute ten miles and back every day. (Pardon, did the lady at the back say 15? Yes? Sorry, 15 miles each way.) There's a benefit in being able to "pop home" for lunch (which him indoors has cooked for you - between bringing you cups of tea etc). You can make up a million of these before any monkeys get spanked. Maybe you can have a second beer without worrying about needing to drive home after, etc etc etc.

These might not all equate to BIKs, but please let's not pretend there're no Bs. (And often, where there's a B, the I and K follow.)

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Replying to Tax Dragon:
RLI
By lionofludesch
16th Oct 2020 13:15

Tax Dragon wrote:

@the initial "what benefit?" responses:

There's a benefit in not having to commute ten miles and back every day. (Pardon, did the lady at the back say 15? Yes? Sorry, 15 miles each way.) There's a benefit in being able to "pop home" for lunch (which him indoors has cooked for you - between bringing you cups of tea etc). You can make up a million of these before any monkeys get spanked. Maybe you can have a second beer without worrying about needing to drive home after, etc etc etc.

These might not all equate to BIKs, but please let's not pretend there're no Bs. (And often, where there's a B, the I and K follow.)

So, if you work at an office across the road from your house, there's a benefit in kind?

You're havering.

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Replying to lionofludesch:
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By The Dullard
16th Oct 2020 13:18

There is a benefit. Two jobs, identical money, one is 100 miles away and one is 1 mile away. Which employment will be more beneficial?

Before you can get a charge to tax there must be a cost, deemed cost or other deemed taxable amount.

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Replying to The Dullard:
RLI
By lionofludesch
16th Oct 2020 13:21

The Dullard wrote:

There is a benefit. Two jobs, identical money, one is 100 miles away and one is 1 mile away. Which employment will be more beneficial?

Or you could flit.

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By The Dullard
16th Oct 2020 13:31

That doesn't stop one of them being more beneficial than the other.

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Replying to The Dullard:
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By lionofludesch
16th Oct 2020 13:31

Seriously, I've never had a job more than four miles from our house.

The whole concept of travelling vast distances to get to work is alien to me.

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Replying to lionofludesch:
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By Tax Dragon
16th Oct 2020 14:32

lionofludesch wrote:

You're havering.

I had to look that up. Assuming you don't mean I'm a London Borough, then I've had to look up the meaning of the definition of havering. (Something about vacillation... isn't that the hoped-for cure to COVID?)

It's been an educational few minutes. So this thread has had some benefit.

Reread what I said. Or, better, show me where the legislation tells me that "benefit" means "financial gain".

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Replying to Tax Dragon:
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By Tax Dragon
16th Oct 2020 15:27

Tax Dragon wrote:

Reread what I said. Or, better, show me where the legislation tells me that "benefit" means "financial gain".

Let me help you out here Lion. The tax is established by law, not by common sense.

I was kind of hoping you would point me at s62(2) and (3) here... I thought I was being nice giving you the opportunity to show you were looking stuff up, not making it up.

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Replying to Tax Dragon:
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By lionofludesch
16th Oct 2020 16:26

Tax Dragon wrote:

I thought I was being nice giving you the opportunity to show you were looking stuff up, not making it up.

Not really my style.

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paddle steamer
By DJKL
16th Oct 2020 17:04

"If I get drunk, well I know I'm gonna be
I'm gonna be the man who gets drunk next to you
And if I haver, yeah I know I'm gonna be
I'm gonna be the man who's havering to you"

More akin to talking when very inebriated (though one can haver when sober),as taken from the lyrics of Leith's famous adopted sons.

Here is their anthem, I am near the top of the stand on the far side along from the empty stands:-

https://video.search.yahoo.com/search/video?fr=mcafee&p=hibs+cup+final+s...

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