Member Since: 28th Nov 2005
7th Oct 2021
OP - once you have engaged an advisor no doubt they'll clarify all of the points being made on here.
In the meantime, as your query was really about the tax that might be due on your expenses payments received, you might want to spend some time and look at whether you really are self-employed or not.
Loads of commentary and opinion online on this. If you Google 'CEST tool' you will find an HMRC link that is supposed to help you decide if you are employed or self-employed, and gives you some idea of the issues being bandied around on here. The tool has had a bad reputation for being biased in favour of employment, but hey, what d'you expect - it was set up by HMRC and they want the tax now, so PAYE works for them.
Hope you find your answers.
6th Jul 2021
Thanks for this - interesting what you say about the EE NIC. Any further deliberations on this front?
I notice you don't mention the ER NIC. Common sense would dictate that no adjustment was needed as this isn't the individual's own cost, a view shared by others asked. However, the guidance notes on the annual superann return indicate that the capital account adjustments should include ER NIC!
Is there something somewhere that you recall lays out this action that you could point me to?
Tried speaking to HMRC technical inspector for further guidance on their manual entry at EIM03000 and the statutory references it makes, but was told 'no' and that a 'non-statutory clearance application should be made'....
25th May 2021
Thanks to both responders so far.
I think my next step will be to have a meeting with the client, and ask why he hasn't provided the details requested, tell him we have already clocked up considerable time on the back and forth chasing for info etc. and until we get to a better place, a fee will be issued and no more work will be done.
17th Feb 2021
Appreciate the detailed follow up on this.
(@Wilson Philps - - thanks, and see below for the reasons...)
As far as the CT relief for pensions is concerned, this is purely from an economics perspective.
The client and the IFA were bothered that they maximised not only the pension fund but the relief on those contributions. If payment by the company results in nil relief, as seem to be the case, then the question of whether a personal contribution would be appropriate arises and whether this would be any more beneficial. The individual would likely be UK resident for 2020-21 despite control of the company shifting (let's say on 1 January 2021 for simplicity) in the same year, and so far has had UK earnings in 2020-21 of more than £80k , so if they had funds, they could make a personal pension contribution of £64k net and still obtain higher rate relief/relief at source. They have five years to make similar payments but obviously there may be issues with UK income sources in later tax years. The question will be how do they get the funds if not already to hand to make the contribution; as identified already, this could be either salary from the French PE or dividends from the UK, but some thought is needed due to the possible tax costs in the UK and overseas.
Point noted on IR35 but as you say this is moot as should not be in point.
The client is engaging a French accountant so they should be able to establish what the local legislation has to say about pensions paid to a UK fund by the French PE.
Thanks again for your help.
17th Feb 2021
Thanks for your reply RT.
The country is France. Articles 5 and 7 of the DTA confirm there will be a PE in France (this is a consultancy service). Article 4 looks to be the tiebreaker, but as far as I am aware, the client has moved everything to France and severed all ties in the UK; they sold their home a while ago and have been in rented ever since.
The pension will be paid by the company (not personally), so my concern was this would not obtain CT relief.
The IR35 position is messy - potentially there could be a (small) UK end user engaged with a French company, so even under the new rules from April, the onus would be on the contractor, who wouldn't be subject to UK rules.
Interesting point you make about the dividend position not being affected by the PE, and as you say, a non-resident in receipt of UK dividends receives them effectively tax free due to the notional credit still available.
Thanks again for your input.
9th Feb 2021
Thanks for confirming on the cost aspect. Hadn't realised it would be taxed under PAYE rather than via the P11D route, and yes to the NIC!
9th Feb 2021
Yes, PPR not causing issues.
9th Feb 2021
I should perhaps expand on my original post. The client sells fruit wholesale, so has little output VAT and I suspect this 'idea' is driven by the lure of a potentially large input VAT refund, regardless of the overall impact of the idea.
Also, this will be a two storey extension to his house with a door through from his dining room in to the office, and a first floor master bedroom suite accessed via a door from a corridor, so not a pod in the garden. Cost/M/V is estimated at say £50k.
For whatever reason, the client doesn't wish to sell the land to the company to build on, on which any gain is likely to be either covered by PPR or the CGT A/E.
There is clearly private use of the first floor and probably some of the office (although the more I think about it, the less likely they may be to actually use this space if it gets filled up with office stuff).
For VAT, costs relating to the first floor will need to be disregarded as would any private use of the office space (for simplicity lets say it's a 50/50 split upstairs/downstairs and there's 20% private use of the office) so in total there would be a 40% VAT recovery available on the purely business element of the office.
Denny indicates that if the extension is paid for by the company, but built on his land, he owns the property thereafter, and the increase in the value of the overall property (that is the M/V of the extension) is taxable as a BIK. This being the case, the director is taxed on a BIK of say £60k (the M/V) and the company gets a P & L deduction for £60k.
Then, if the company kits out the office with fixtures and fittings and the director has his 20% private use of the office space, the company would still claim full CAs etc. on the fixed assets it has bought and the director gets a BIK equal to M/V of the fixtures and fittings x 20% with no adjustment for private use - just coincidence on the percentages, as this is the 'assets made available' calculation.
Looking at this simplistically:
- the office build cost of £50k plus VAT will give a £4k VAT recovery at best taking the 40% element.
- if the finished office is worth £60k then the P & L CT relief at 19% would be £11.4k.
- the personal tax cost of the BIK (at say 41%) is more than £24k.
- overall they are worse off in tax terms by more than £12k.
- the VAT recovery will reduce the net tax loss to £8k.
If this is correct, then no BIK on the use of the building as it belongs to the director?
There would be a BIK on the fixtures and fittings side of things.
I've ignored NIC for now just to get the principle right.
9th Feb 2021
Thanks to all (and I mean that very sincerely folks....for those who can remember that far back, as we are quoting 'older' lyrics...).
Had a look at the article and it does cover off a lot of the issues but I'm not sure it addresses one of the issues I have been made aware of under the common law aspect of all this. That is that as the ownership passes to the director under common law, and it's a connected company, a BIK equal to the M/V of the office will be charged on the director(s) as a P11D BIK (transfer of an asset) and the company will get a deduction in the P&L for the same amount.
The net position is a tax cost equal to the difference between CT rates and personal rates.
If this is correct, then the only other BIK could be from the private use of any of the F & F within the office if provided by the company; company gets CAs on the costs and there is a BIK equal to M/V x 20% of those assets etc., and is not apportioned for business/private split, just the period of time in use in the year.
16th Sep 2020
Somehow this post has been duplicated here. The original post is here: