Any Answers Answered: Travel expenses and AIA
This month TAXtv hosts Tim Good and Giles Mooney answer questions about annual investment allowance and travel expenses for a director who lives outside London.
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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AIA on a van sold to a client's new company
The first question to pique the interest of Good and Mooney was from AccountingWEB member Lottie1, who asked:
“The client bought a van for £14,000 three years ago and his accountant at the time claimed the whole lot as AIA, and he received a tax refund for that year 2014/15.
“I took him on for 2015/16 and put his depreciation through his accounts, obviously the van was not included on the tax return.
“The client has since set up a limited company and as such ceased trading as self-employed at 31.12.16. He wanted to transfer his van to the limited company at a cost of £9,000.
“So for his tax return 2016/17 as self-employed, should the £9,000 go back in as a balancing charge as he already had the tax benefit? This is going to give him a big tax bill especially as he was only self-employed for nine months, but clearly if this is the right treatment than it is what it is.”
For Tim Good, the default position is the actual price that’s used by the businesses will be the effective price for capital allowances in both of them.
“But,” said Good, “where you’ve got a transfer to a connected person under section 266 of the Capital Allowances Act 2001, you’re able to elect that the amount that’s used in the capital allowances computation for each party is an amount that gives rise to neither balancing charge nor balancing allowance.
“What we would do in this particular case is suggest that an election is made to transfer the van at its tax-written-down value of zero so there’s no balancing allowance on the sole trader, but of course that would mean the company isn’t going to be eligible for any capital allowances either.
“It would also mean that on an eventual disposal by the company, the then proceeds would come into charge to corporation tax in full. Of course, that would be advantageous in most cases - with corporate tax rates being lower than income tax rates that would defer any liability.”
Good also raised a final point about a time limit for making that election: for more details check the video below.
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Travel expenses for a director who lives outside London
The second and final question is from a reader whose username falls foul of the AccountingWEB profanity filter but appears to be a distant relation to French author and playwright Alexandre Dumas. He or she asks:
“A company with two directors: one lives in London and the other, Mr A lives outside London.
“Mr A commutes to London four days a week: three days to be with clients and not in the office at all, and one day to the office for a meeting.
“Can Mr A:
- Claim his travel to London when he sees the clients?
- Claim his travel to London office to meet staff?
- Be considered a remote worker as he is only in the office once a week?”
To begin his answer, Good pointed to a number of relevant points posted on the Any Answers thread. In particular, a post from AccountingWEB regular I'msorryIhaven'taclue who includes extracts from the Revenue guidance.
According to Good, it’s “all to do with the temporary workplace rules, and although home-to-work travel is not allowable for an employee or for anyone else, if you’re travelling to a temporary workplace then in certain circumstances you can get relief. A temporary workplace is somewhere that is not your permanent workplace.”
Even those splitting their time between two offices in different locations would not be allowed to claim relief because each of them would be counted as a permanent workplace.
“Here,” Good continued, “we’re looking at travelling to clients rather than permanent workplaces. It sounds as though the clients’ offices are temporary workplaces, but I’m afraid that isn’t going to help us because the Revenue will not allow the relief where the journey to the temporary workplace is (by and large) the same as the journey to your permanent workplace.”
Examples are provided in the Any Answers thread, and in the video Good flagged up one particular case where the worker was entitled to relief.
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