This month TAXtv hosts Tim Good and Giles Mooney get to grips with AccountingWEB reader queries on corporation tax deductions on rental costs and car parking benefits in kind.
To watch the full video of Good and Mooney answering readers’ questions, click here or scroll down to the bottom of the page.
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Cost of flat allowable for corporation tax?
Our first question this month came from AccountingWEB reader SkyBlue22, who asked:
“A new client has been paying for rental costs for the flat of a director who currently lives in Birmingham, and has been for several years. The office, however, is in Essex so the company is paying for the flat so that the director can stay close the office during the week, and he goes home to Birmingham at the weekend.
“Is this allowable for corporation tax? I suspect not, seeing as the office is his permanent workplace.”
Tim Good stated that he believed SkyBlue22’s use of the phrase ‘permanent workplace’ indicates this questioner is thinking about the expense allowance rule for employees, ie would the travelling costs from Birmingham to Essex be allowable? “The answer to this would be no because it’s not a temporary workplace,” said Good, “but this is a complete red herring when it comes to the deduction for the company.”
According to Good the clear and simple answer to SkyBlue22’s question is yes, it is corporation tax deductible for the company.
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“It’s an expense the company has decided to incur in order to make the life of that particular director easier in terms of the work they’re doing,” said Good. “It’s incurred wholly and exclusively for the company’s trade and there’s no doubt the company’s entitled to corporation tax deductions on that rent.”
Good and Mooney then went on to discuss other issues raised by the question, including benefits in kind and the director’s entitlement to main residence relief (see 3.40 on the video for more details).
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Car parking at office paid by employer: benefit in kind issue?
The second question came from supafletch, who is clearly a generous employer and pays £500 a year for individual members of staff to park near the office.
According to Mooney, the question here is how should the tax be dealt with? Is it a benefit in kind? Is it something the company can write to the Revenue about asking ‘please don’t tax my employees on this – we will deal with the tax charge on their behalf?’
Mooney stated his gut feeling was that it was an exempt benefit, and the first respondent to the question, AccountingWEB tax celebrity Portia Nina Levin, asked: “Why hasn't your accountant told you that it isn't taxable?”
However, those responses assume that it is an exempt benefit. Good stated that although parking at your workplace is usually an exempt benefit, as another respondent to the thread David Heaton pointed out the new optional remuneration arrangement (OpRA) rules that came into effect 6 April 2017 might, in fact, mean there is a taxable benefit.
“It may be that the company has a policy of saying to staff ‘if you drive to work and want to park at the local NCP and it’s going to cost you £500 a year, we will make the payment of the £500 to NCP but we will reduce your salary by the £500,’” said Good. “That might be their policy because they’ll have employees who come to work by public transport or bus and don’t have that cost to meet, and it would be unfair to give this benefit to some but not others.”
“They may be doing it on a salary sacrifice basis,” continued Good, “and if that’s the case then it does then require a look at the new optional remuneration arrangement rules, where since April 2017 we have to take the higher of any cash alternative or salary foregone, or the taxable benefit under the normal principles – in this case the higher of £500 (if that’s the salary sacrifice figure) or zero (being the exempt benefit figure). That would then require a taxable benefit of £500 to be reported.”
Good and Mooney then discussed the transitional rules under the OpRA regime (see 7.55 on the video for further details).
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About Tom Herbert
Tom is editor at AccountingWEB, responsible for all editorial content on the site. If you have any comments or suggestions for us get in touch.