What is a rental business?

Introduction

The current recession is affecting virtually everyone, including property investors. Many buy-to-let investors are finding it increasingly difficult to find tenants, and some are making significant losses.

Properties owned by a property investor generally constitute a single rental income ‘business’, and there is normally little difficulty in setting off a loss from renting one property against a profit from another. However, what is the position for the property investor who owns some properties in his/her sole name, but only has a joint interest in others? Do the different property interests constitute a single rental income business, so as to allow effective relief for losses?

HMRC’s approach is that rental business activities are treated as a single business if carried on by the same person in the same legal capacity. For example, an individual could own investment property in his own right, and be the trustee of a trust in receipt of rental income. These would be treated as separate rental businesses.

Jointly owned property

What about jointly owned property? HMRC’s view seems to be that the taxpayer’s share from jointly owned property will usually be included as part of their personal rental business profits or losses. However, if the letting is carried on as a partnership, the taxpayer’s share of the rental profit or loss from the property rental partnership must be kept separate (e.g., a share of partnership losses cannot be deducted from personal rental business profits).

A potential difficulty is in establishing where a partnership exists. There is case law (HMRC often cite an old case, American Leaf Blending) to support the view that letting property can constitute a business. However, it may be difficult in practice to distinguish between a business and an investment.

HMRC’s guidance states the following (PIM1030):

“Most cases of jointly owned property will fall short of the degree of business organisation needed to constitute a partnership. To accept that a partnership exists you would have to be satisfied that there is a similar degree of business organisation as in an ordinary commercial business. This means more than treating rental income as derived from a business of letting property - it must be a business apart from that.”

Spouses or Civil Partners

The tax position is different for property owned jointly by husband and wife (or civil partners) who live together. The general rule is that they are treated as entitled to property income in equal shares. However, there are six exceptions to this general rule for income tax purposes (in ITA 2007 ss 836 & 837). One of these is that the income is from a partnership. Another exception is that the income is earned income, such as from furnished holiday lettings. A further exception is where the spouses are beneficially entitled to the property income in unequal shares in accordance with their unequal beneficial ownership of the property, and make a joint declaration to be taxed on that basis.

HMRC’s view of partnerships being a separate legal entity appears to contradict a general principle of English law, that a partnership has no separate legal identity from its owners (although the position is different with LLPs, and also under Scots law). It is possible that their approach may be tested in the Courts one day. In the meantime, taxpayers and their advisers need to be aware of HMRC’s view - unless they are the ones wishing to challenge it!

Getting tax relef on your residential mortgage

As most landlords are aware, it is not possible to claim interest relief on your main residence.

This is because your main residence does not form part of the property business. However, it is possible to claim interest relief on properties that form part of your property business i.e., your buy-to-let portfolio.

Introducing BIM45700

Paragraph 45700 of HMRC's Business Income Manual (BIM) illustrates how one can release equity from his or her properties and offset the interest regardless of what the equity release was used for.

The only restriction is that the equity release cannot be greater than the market value of the property when it is brought into the letting business. If the property had been originally bought for letting, this amount would be the purchase cost of the property.

So How Do We Get Tax Relief on Our Main Residence?

Well there are two ways to achieve this:

a) Remortgaging existing buy-to-let property/portfolio

The example below shows how/when you can release equity from property you own to give you a tax benefit.

Example

John buys a buy-to-let property for £200,000. He provides a £40,000 deposit and borrows £160,000. 5 years later the property has increased to £250,000. This means that he has £90,000 equity in the property.

He decides to remortgage the property to a value of £200,000 thus releasing £40,000 of equity from the property. He uses the £40,000 equity release to reduce the mortgage on his main residence by £40,000 and still claims interest relief on this equity release.

Now you will be asking how is this possible?

Well, don’t forget the property was brought into the lettings business when it was purchased for £200,000. The additional amount of equity released has not taken the borrowing over £200,000, so the entire interest amount charged can still be offset against the rental income.

b) Moving Equity from Previous Residence

Another useful tax 'trick' is to remortgage a previous main residence. Again this strategy is best illustrated by an example.

Example

Lisa and John buy a property for £100,000 (£20,000 deposit and £80,000 mortgage). They live in the property for five years and then decide to buy another property. Instead of selling their existing residence they decide to get onto the buy-to-let ladder and let the property out.

The cost of the new property is £200,000, and at the time of letting, their previous residence is worth £150,000.

They increase their debt on the previous residence from £80,000 to £150,000 i.e., they release £70,000 of equity. They then use this equity release to reduce their mortgage on their main residence by £70,000.

Once again, because the additional amount of equity released has not taken the borrowing over £150,000 (the price when it was brought into the lettings business), the entire interest amount charged can still be offset against the rental income.

Conclusion

As you can see, sometimes with a little bit of creativity you can bring significant property tax savings! It is possible to get even more creative with this tax break but we’ll leave these strategies for another time.

Paying Self Assessment by Budget Payment Plan

Let's face it most self-employed find it difficult to meet the 31 January and 31 July payment deadlines for income tax and class 4 NICs - coming as they do - just after Xmas and just before the summer holidays.

HMRC now has a Budget Payment Plan offering an easier way to pay your Self Assessment tax by allowing you to make voluntary regular payments towards your future tax bill. It's available to those whose payments are up to date and who pay by Direct Debit.

The plan is flexible and you can:

• decide the regular weekly or monthly amount you want HM Revenue & Customs (HMRC) to collect
• choose to change your regular payment amount
• suspend payment for a period of up to six months
• cancel the Budget Payment Plan at any time

If you currently have an outstanding Self Assessment liability but are interested in setting up a Budget Payment Plan, please contact the HMRC Payment Helpline on Tel 0845 366 1204. The Helpline Staff will be able to advise you on how to bring your affairs up to date and when you can start a Budget Payment Plan.

The plan is available only to those who file online and pays no interest on the advance payments you make. You may do better by disciplining yourself to make regular payments into a designated deposit account to meet your liabilities.

Tax tips

HMRC staff are not able to advise you on how to organise your affairs to minimise the amount of tax you pay. If you are looking to make tax savings and do not want to make a detailed study of tax legislation, you should seek professional advice. 

I have included a series of tax tips here which provide general commentary on various tax saving strategies and should answer some of your tax questions.

Employing your spouse in the business

If you are self employed and your spouse helps out with general administration, or any other role, it is quite legitimate to pay your spouse a salary. Just follow sensible commercial rules and you will have no problem with the Inland Revenue. In particular pay a market rate for the type of work done and number of hours worked. Sole traders with higher rate tax liabilities will benefit significantly from this arrangement.

What about the Garden Shed?

Are you selling that second or third home and want to reduce any capital gains tax that you may need to pay? The garden shed and other fixtures and fittings are treated as wasting chattels for Capital Gains Tax, i.e. when you sell them there is no tax to pay. Why not ask your solicitor to allocate part of the selling price in the contract to these items? Make sure you seek advice regarding Stamp Duty Land Tax when considering these issues.

Low interest loans provided by employers

Providing you are not a director, it may be possible for a company to lend an employee up to £5,000 with no tax complications. This can be useful if say the employee needs to buy out his company car to avoid benefit in kind tax charges.

Capital Gains - Using Home as Office

If you claim tax relief for the use of a room as an office you can avoid any possibility of CGT on a sale of your home if you make sure that the room is not used exclusively for business. A portable TV and your golf clubs stored in the home office could be sufficient.

Valuing Stock to save tax

If your tax bill for the year is looking decidedly on the high side, take a fresh look at your stock valuation at the end of the year. Stock should have been valued at cost, but can be valued at net realiseable value if this is a lower figure. In simple language this means valued at what you could sell the stock in an open market sale. Lowering the value of closing stock will £ for £ reduce taxable profits.

Recover Vat

Recover VAT on invoices that you have paid or received before you register for VAT by including the input VAT on your first return. Make sure you have the VAT invoice and keep a schedule of the adjustments you have made.

HMRC Tax Investigations - Selection

Selection

Targeting the right taxpayers to check is obviously key to tackling non-compliance and the Revenue had been steadily increasing their focus on determining tax risks.. The responsibility for selection of cases shifted from the investigators to Risk Intelligence and Analysis Teams in 2001.

Investigation work was being centralised into large Area Offices at this time and each RIAT would typically comprise several dozen individuals whose primary job was to collate information and determine which cases should be taken up. The RIATs report direct to Head Office and the NAO welcomed the changes designed to ensure centralised decision-making was embraced at local level. This followed several years of dwindling investigation yields.

The key point for advisors and taxpayers is that invariably compliance checks will only be undertaken when it is considered tax is at risk. HMRC now use this term “compliance checks” for the whole range of interventions from a phone call to the little old lady about a minor query on her return to concerted checks across all taxes for a major plc. There are random selections but it is never appropriate to consider these checks to be routine unless it is obvious that the issues being raised are minor. The number of random checks is very small. For example, annual samples for self-employed returns are stated to be 3,000 and 250 for small companies.

Meetings

Taxpayers are often invited to a meeting with the taxman at an early stage when it will be made what the perceived risks in the return were, It is common practice in Local Compliance return enquiries for HMRC to give no reasons for the selection and to request a meeting after the business records review without giving a meaningful agenda. The reality is that their agenda will centre on the perceived risks and I am always very wary of advising a client to attend a meeting unless we have a pretty good idea what the issues are. There is no obligation to attend a meeting and the pros and cons need to be thought through.

Evidently this cat and mouse approach was becoming a problem too for HMRC, for in late 2007 a new approach, “Openness and Early Dialogue”, was trialled for 5 months.

This involved HMRC:

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  explaining why the enquiry was opened
  
  
  
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  agreeing a time scale for a meeting, the production of information, records examination and a discussion of findings
  
  
  
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  focusing on key risks and detailing requirements to address these.
  
  
  

The trial ended well over a year ago but HMRC’s feedback on the results and the way forward has been anything but “Open and Early”. I would have thought that if there were going to be changes then it would have been to everyone’s advantage to introduce these from 1 April alongside the changes in information powers, penalties, tribunals, reviews etc.

On querying the position with HMRC the response was that the initial trials had gone well but now there were further trials to ensure any changes would improve the approach to VAT compliance as well as direct taxes.

The new way for all or the few?

The approach to risk at the Large Business Service end is for HMRC to work very closely with each taxpayer. In their summary sheet “Working with Large Business” they say they will discuss:

“how we assess and manage the risks that apply…we will publish guidance on risk assessment to help you understand what we see as the key risks…our efforts to protect tax revenues will be focused primarily on those customers that present the greatest risks.”

The idea is that low-risk taxpayers will be subject to relatively light touch scrutiny with disproportionate resource allocated to high-risk businesses. This approach has now been rolled out to larger (turnover of £200m or more) and higher-risk businesses dealt with by Local Compliance. Smaller companies, but still large per the EU definition, will see their risk assessments and may take part in the preparation and review of these. The changes give an opportunity for specified businesses to proactively work together with HMRC in understanding and addressing their perceived risks.

So, clearly HMRC believe that the LBS approach works for sizeable taxpayers and the 2007/8 trial indicates that a significant element of this strategy - openness - works much lower down the scale. Is the officer opening the enquiry into the return of the £250k turnover plumbing business in Walthamstow next week going to continue the approach that has been used since the start of SA? That is a neutral or negative response to the question “what’s the problem here?” until the enquiry is well down the road. I believe the HMRC approach now being used for larger Local Compliance cases puts the advisor in a far better position to establish at an early stage in any enquiry what the perceived problems are as a condition of providing full and proactive co-operation. That’s certainly the line I will be taking.

Tax planning in a recession for the small business

Are we allowed to call the current economic crisis a “recession” or do we go as far as “depression”? Whatever the title, we must ensure tax planning and protection helps the survival of the small UK business.

Here is a sample tax planning checklist:

1) Budget 2009 - Carry back of tax losses for three years (normally only for one year)

The key points are toidentify and claim the tax loss early and that means as soon as possible . Accounting concerns will be bad debt provisions, claim for repairs as opposed to improvements, the correct treatment of capital allowances and the write down of balance sheet items where appropriate and how this has an impact on tax planning.

2) Date of Approval of Proprietor’s Accounts – assess the position at the date the accounts are signed.

A few weeks either side could totally change the accounting and tax treatment of balance sheet values and provisions.

The cut off point can be critical with regard to issues of, say, prudent accounting treatment that results in an insolvent balance sheet but tax losses to utilise. Factors surrounding the collection of debts change on a daily basis and so too can the solvency of the company and the tax loss to take advantage of.

3) Net Realisable Value (NRV) and Tax Planning

A clear example of tax planning is that stock should be valued at the lower of cost and net realisable value. How does the owner of the business arrive at net realisable value? A key element here must be the need for a professional valuation and the protection that can be achieved by so doing.

a) Farming Stock and Tillages

An example of tax planning and NRV is farming stock and tillages under BEN 19 where a percentage of market value is used. How complex is market value for farming? Surprisingly straightforward. There are markets for comparison and the livestock and corn prices have stayed steady but what of the bloodstock market?

b) The Equine Market

Stock is valued on an item by item basis at the lower of cost and net realisable value. There is great scope to value each item at the low values currently being seen in the sales ring.

But what is market value and how can it be ascertained?

Trading tax losses created by the fall in stock values can of course be carried back against profits of the last three years and a tax refund claimed.

4) Legal Claims – tax advantage for the small business

It is said that in a recession there will be greater attempts at legal action, i.e., civil litigation against small businesses and the accounting treatment will have to be considered with regard to the correct accounting and tax treatment. It would be cynical and inappropriate to suggest that some proprietors would welcome evidence of potential legal action that could increase the accounting and tax loss, claim the tax refund and then be possibly written back in future years' accounts.

Those charged with governance of the business will be making the accounting and tax decisions. What is the role of the professional adviser?

Reliance on tax advisers, accountants and auditors could be another reason to set up the greater opportunity for civil actions against professionals – the guardians of true and fair and accurate accounting. The real shame for all concerned is that honesty, proactivity and genuine client care by professionals could result in greater exposure to litigation.

5) Professional Negligence Claims – financial disadvantages for professionals

Professional life is full of irony and one such example is that professionals who try to help clients who are suffering under the strains of the recession could be MORE likely to be subjected to a professional negligence claim. The duty of care owed to the client will need to be defined as will the evidence of requisite skill and care involved in any work carried out. The claimant will have to show actual loss suffered. Great care must be taken and will be needed in defining terms of engagement.

6) Engagement Letters for one-off specialist survival work

When clients contact their professional advisers asking for help it would be reassuring to think that the first matter the professional considers is self-protection but after giving due consideration to the problems raised by the client the next matter to consider is risk management of the work that is required. The starting point is that the terms of the engagement have to be clearly defined and what are the risks involved. To whom is the duty of care owed and what is the size of the financial risk?

7) Trading whilst Insolvent – unlawful dividends

For the limited company one of the first safety checks has to be are there enough profits built up in the company to allow the directors to authorise payment of dividend when the business is not trading profitably?

Directors must carry out safety checks as to solvency on an ongoing basis. The desire to maximise a tax loss to carry back under the new three year provisions of the 2009 Pre-Budget Report must be carefully reviewed as must genuine legal claims and resulting provisions against the client company.

If restructuring is needed will there be a “change of ownership” that can have tax disadvantages regarding the use of losses?

8) “Change of Ownership” and restructuring

“Change of ownership” resulting from restructuring to help a struggling company has to be given due consideration. The tax restructuring of struggling companies has to be planned carefully.

Rules that prevent an investment company’s use of its non-trading losses (expenses of management, non-trade loan relationship deficits, or charges) if, after a change of ownership, there is a significant increase in the company’s capital (TA 1988 s 768B(1)(a)) need to be considered, as well as the perhaps better known provisions for losses in trading companies where there is a change in ownership. As the number of companies that are incapable of servicing their debt rises, a fair number of these will have significant interest losses.

A “change of ownership” is defined by TA 1988 s 769 as the acquisition by one or more persons of over half of a company’s ordinary share capital. If this is in fact by more than one person, each must acquire at least 5%. The change of ownership is calculated by comparing any two points in time over a period of three years.

Assuming there has been a change of ownership of a company, there also needs to be an increase in its capital in order for it to lose the benefit of its tax losses going forward. To determine whether this has occurred, it is important to look at TA 1988 Sch 28A.

A company in hardship that has been forced into a debt for equity swap by its banks as a condition of avoiding a winding-up process, on HMRC’s interpretation faces the prospect of losing the benefit of its tax losses – tax losses that could potentially be of enormous value to the company’s survival. The company replaces a non-capital item (bank debt) with a capital item (shares).

The company law implications of those actions (including some thought about the directors’ fiduciary duties and the possibility of financial assistance issues) may need further consideration.

Summary

Proactive tax planning and protection can help reduce tax liabilities and even result in tax refunds for the small business at a critical time. However, the complexity of solvency, change of ownership and protection for the tax planner must be considered.

Contact John Pointon at post@jpointon.co.uk for further information.

Factsheet : Income Tax 2009/10

There is no minimum age at which a person must pay income tax. What matters is your income: if it is below a certain level, no tax is payable.

Tax bands

Income tax is a "progressive tax" - in other words the rate rises with your income. Everyone has a personal allowance (currently £6,475 for under 65s), which is tax-free. Income over this figure is subject to taxation at the following rates:

· Basic rate (20%): in the 2009/10 tax year this is payable on the first £37,400 of income over the personal allowance.

· Higher rate (40%): this is payable on all taxable income above £37.400.

This means a person earning £45,000 a year would pay no tax on the first £6,745, 20% on the next £37,400 (£7,480) and 40% on the remaining £855 (£342), adding up to a total tax payment of £7,822.

Until April 2008 there was a third low-rate level of 10%, but this was scrapped by Gordon Brown in his last budget as chancellor.

Paying income tax

If you are an employee, your employer will deduct the tax you owe at source - that is before your pay packet is handed over.

Your employer will tax you according to your tax code, which is based on your employment circumstances. If you have already worked, your previous employer should have given you a P45 when you left. Your P45 will tell your present employer how much you have earned in the current year (if anything) and how much tax (if any) you have paid so far in that tax year.

Almost everyone will pay income tax at some point in their life

If you have no P45, ask your new employer for a P46. In due course you will receive a form from the tax office asking for details of your income and employment history. Complete this form and return it promptly - if you do not, you may end up paying more tax than necessary. When the tax office has received your completed form it will issue you with a tax code, a copy of which will be sent to your employer automatically.

Self-employed people

If you work for yourself you must register for self-assessment with HM Revenue & Customs within three months of becoming self-employed, or risk a fine of £100.

After that you will be sent a tax return each April. Although you can work out your own tax bill, HMRC will do it for you if you send in your return by October 31, or January 31 if you fill the form in online.

You will need to settle your tax bill by January 31, otherwise you will face a fine.

Self-employed people may be able to offset expenses against their tax bill.

Employees who receive a second income on top of their main salary, and pensioners who receive a private pension or other income, will also need to fill in a self-assessment form and settle their tax bill in this way.

If you are self-employed you may be able to offset some of your expenses against your tax bill and reduce the amount you owe. Travel, rent on office space and stationery costs may all be offset. It can get complicated so you may benefit from hiring an accountant who will ensure you maximise the allowances and reliefs available to you.;

Your tax code

The tax code is the total figure you are allowed to earn in any tax year before you start paying tax, without the final digit. For example, a code of 512H means that you start paying tax after you have earned £5,120.

The letter shown after your code defines your status. L represents a basic personal allowance entitlement, H a personal allowance plus married couple's allowance or additional personal allowance at basic rate, while D represents a higher-rate taxpayer. The letters OT mean no allowances have been given; this code might apply when you have overdue tax returns or your tax affairs are very complicated.

Sometimes your taxable benefits will exceed your allowances, an example being if you are taxed on a company car or you owe money to HMRC from previous tax years. In these cases, a K code enables your employer to recoup tax on behalf of HMRC.

Make sure you check your tax code if you change jobs or your circumstances otherwise change. If you think the code is wrong, speak to your employer and to the tax office.

Savings

Unless held in an individual savings account (Isa), any interest you earn on your savings will also be subject to income tax. If your income is below the tax allowance, and your savings interest won't push you over it, you should fill in form R85 to receive it without the tax being taken off. Otherwise, your savings provider will deduct 20% of your interest for the taxman.

If you are a higher-rate taxpayer you will need to contact your tax office. It will ask you to fill in a tax return, or form P810, and arrange to deduct the extra tax through your employer's payroll.

The P60

This piece of paperwork is sent out after the end of the tax year. It details your earnings and tax deductions for the past tax year and is provided by your employer each April.

If you fill in a tax return you should keep records of your taxable income for at least 22 months after the end of the current tax year. Make sure you keep your P60s in a safe place as duplicates are not always easy to obtain.

Self-employed people must keep records for six years after the relevant tax year.

Employees : Temporary workplace tax rules

Temporary Workplace Rules

When can you claim home to work travel expenses as an employee?

Ordinary Commuting

Ordinary commuting is never tax deductible for either employer or employee. 

In general terms it is where you start off from home, travel to the same work site every day to complete work and then return home, and continue to do so until your employment is terminated.

When travel is classed as “ordinary commuting”  the workplace is a“permanent workplace” i.e. one that does not change within the employment.

If you remain at the same location for all your employment then it is “ordinary commuting” and is not a business expense as you are working at a “permanent workplace”.

Temporary Workplace

For travel expenses to be a business expense the workplace attended must be a “temporary workplace”. A “temporary workplace” is defined by legislation in Section 339(3) ITEPA 2003 and explained by Her Majesty's Revenue and Cuatoms at EIM32075 .

A workplace is a temporary workplace if you go there only to perform a task of limited duration or for a temporary purpose. So even where you attend a workplace regularly, it will be a temporary workplace and so not a permanent workplace, if you attend to perform a task of limited duration or other temporary purpose.

In Kirkwood v Evans (74TC481) the statutory definition was explained in the following terms.

"Having regard to the provisions of [Section 339(3)] the definition of a temporary workplace is intended to encompass places of work which require the employee's attendance for a limited or temporary purpose within a course of employment (whether of limited duration or otherwise)."

A worker attending a temporary workplace will work for one employer and will move from one workplace to another during that employment.

An owner-director of a limited company engaged on various assignments for it, is attending a temporary workplace if they attend for less than 24 months.

The director needs to attend more than one workplace during the employment with the limited company for a workplace to be a temporary one. If a director only attends one workplace during the whole of the employment with the limited company that workplace will not be a temporary one and the travel expenses will not be claimable.

The duration attended at a temporary workplace must be less than 24 months in total. 

If the workplace is attended for more than 24 months it becomes a permanent workplace from the start of attendance at that workplace and no expenses from the start of the assignment are claimable as travel expenses.

The “24 month rule” is part of Section 339(5) and (6) ITEPA 2003 and HMRC give guidance at EIM32080 .

Permanent Workplace

If the employment itself is for a limited duration and only one workplace is attended then that workplace is the permanent workplace for that job, even if it is just for one day for one workplace for one employer.

If an employment is for a specified period of time or for a particular project situated at one workplace then HMRC considers this workplace a permanent one, and travel expenses will not be claimable.

Expectation

HMRC will take note of evidence suggesting it was expected  that the workplace would be a permanent one, and will disallow travel expenses claims where the expectation is that the workplace will be permanent.

So if a contract is signed for more than 24 months for a project on one location, that location will be a permanent workplace from the start.

If the contract is for a shorter period, say 9 months, but there is evidence to suggest that the workplace and the contract will remain the same for at least 24 months, then again the expectation is there and the workplace is a permanent one.

Employment

Where an owner-director is employed by his company to complete a series of assignments for it, the director will receive a salary for that employment. 

It is important that between assignments the director continues to be paid his regular salary to demonstrate that the employment, from a tax perspective, is maintained between assignments.

The 40% rule

Where the workplace is attended for more than 24 months, a “40% rule” is applied to it.

Where the total time spent at one workplace is 24 months then, if 40% or more of the available worktime during that 24 months was at one workplace,  the travel expenses are unclaimable from the point at which 24 months has been completed.

This is important in where an employee works on one site, moves to another site and then returns to the first site. 

If 24 months have been completed on the one site in total, then if 40% of the available time has been on that one site, then travel expenses cease to be claimed from the point where 24 months are exceeded.

As an example of how this works say an employee had the following engagements:-

1. 6 months at workplace 1,
2. 6 months at workplace 2, 
3. 6 months at workplace 3, 
4. 12 months at workplace 1, 
5. 6 months at workplace 4, 
6. 6 months at workplace 1 
7. then a final 6 months at workplace 1 

In the first 6 months workplace 1 is viewed as a temporary workplace

In the second 6 months workplace 2 is viewed as a temporary workplace

In the third 6 months workplace 3 is viewed as a temporary workplace

In the next 12 months workplace 1 is viewed as a temporary workplace as 18 months have been completed on workplace 1

In the next 6 months workplace 4 is viewed as a temporary workplace

In the next 6 months workplace 1 is viewed as a temporary workplace.

In the next 6 months workplace 1 is viewed as a permanent workplace from the start of this period as a total of 24 months have been completed at this workplace out of 42 months (57%) at the beginning of the period. At the end of the period a total of 30 months have been completed out of 48 months in total (62%) and so at the end of the period workplace 1 is still a permanent workplace.

Depots/HQ’s/Base Location

Where a director travels to an HQ/depot or is based at a client location and then goes to a workplace to fulfill an assignment, if the depot/HQ/base location is the same , but the workplace is different, it is likely that the travel to the depot/HQ/base location will be ordinary commuting. 

Defining the difference between two workplaces

For a workplace to be different there must be a difference between the journeys to the different workplaces.

HMRC give the following example:

"A computer consultant is the only employee of a company that she controls. She is a specialist in banking systems. She spends 18 months working full-time at the headquarters of a merchant bank in Lombard Street in the City of London. She then moves next door to design a new computer system for a different bank where she expects to stay working full-time for 22 months. After that assignment she moves to a bank close by on Cheapside for 17 months. The employee expects to work continuously in the ‘Square Mile’ albeit on the premises of different banks. Her travel from home to work will be broadly the same every day. No deduction is due for the cost of travel between her home and any of these workplaces"

If a different journey is undertaken it is more likely that each workplace is different. 

The question of “how different a journey ?” is subjective and if you have any doubts then take advice, but basically if you end up at the same public transport terminal or you use the same roads, then it is likely you are at the same workplace.

HMRC give guidance on this at SE32089 and also detail further examples of where Paragraph 5(3) Schedule 12A ICTA 1988 would apply in SE32280 where they give the following example:

"An employee may change his or her workplace without that change having any substantial effect on his or her journey to work. If a change of workplace does not have any substantial effect on the employee's journey, or the expense of that journey, the change is ignored. The two workplaces are treated as a single workplace. So if an employee changes his workplace from Cardiff to Edinburgh that change would be recognised, while if the change is only to the office next door it would not be recognised."