May Q&A

Expenses for travel to temporary workplaces

Q. In April 2020 we furloughed an employee who since June 2019 had been temporarily working away from her normal workplace. She is about to return to work at the temporary location and is expected to be there for the next six months at least. We have always paid her for travel costs to and from the temporary workplace tax and NI free, but in June she’ll have been there for 24 months and we’ve been told that we’ll have to apply PAYE tax and NI from then on. Is this correct?

A. There are two important tax rules to consider. First, the period of furlough is treated as a continuation of the period of work at a temporary workplace. Second, expenses paid for the home-to-work travel are liable to PAYE and NI after 24 months unless it is known earlier that the period of work at the temporary location will exceed 24 months. In that case PAYE tax and NI applies from the date it’s known the 24-month period will be exceeded. You must apply tax and NI to her home-to-work travel expenses you pay your employee as soon as she returns to work.
A period of furlough from work at a temporary location counts as a continuation of that arrangement. Expenses for travel to and from home and a temporary workplace can only be paid tax and NI free for 24 months or, if earlier, until it’s known that the arrangement will last beyond 24 months.

Is option to tax election being made too late?
Q. My wife and I are registered for VAT as farmers. At the end of 2019 we refurbished a farm building that we have always used for storage purposes. We claimed input tax on the building work. We have decided to rent out the building to a firm, so have opted to tax the building and will charge VAT on future rent, which we will start to receive later this year. However, I understand that we must repay the input tax claimed last year because more than 30 days have passed since the expense was incurred and our option to tax form being sent to HMRC. What is the best way to disclose this, and will we be subject to penalties?

A. The good news is that you have no problem with your past input tax claims. At the time the expenditure was incurred your activities were linked to farming. It was only when you agreed the rental arrangement with the firm that potential exempt rental supplies became an issue. Your option to tax election is being submitted before the rental agreement starts, so all rent will be subject to VAT. So, because the buildings have never generated exempt rental income, or been used for non-business purposes, you have no problem with input tax. There is therefore no need to make any disclosure, and you are at no risk of attracting any penalty.

Lease adjustment costs – input tax reclaimable?
Q. We own a commercial property which is opted to tax and we charge VAT on the rent to the tenant (a VAT-registered business). The tenant wants to sublet the property to help them through the coronavirus crisis. However, it will cost us £3,000 plus VAT in legal fees to adjust the lease. The tenants have agreed to pay these fees, so presumably they can pay the solicitor directly and claim input tax of £600 on their own VAT return?

A. The good news is that the VAT on the legal fees need not be a cost to either you or the tenant, but you need to adopt a different approach to what is currently proposed.

Only you can claim input tax on the legal fees because the solicitors are providing their services to you as the landlord and not the tenant. Only a business that is buying goods or receiving services can claim input tax.
However, you should then raise a sales invoice to your tenant for a “lease adjustment charge”, which will be subject to VAT because of your option to tax election. The tenants can then reclaim the input tax, assuming they are not partly exempt.

VAT liability of transport fees post-Brexit?
Q. We use a transport company to ship goods from England to France. The company charges us VAT on their fees, but our understanding is that this is incorrect and that the fees are now exempt from VAT because we are no longer in the EU. Is this correct?

A. There is good news here. Until 31 December 2020, transport fees were zero-rated when supplied to a UK business if they related to a shipment of goods between the UK and a non-EU country. However, quite a lot of VAT rules that related to “outside the EU” changed on 1 January 2021 to “outside the UK”.

This means, for example, that no VAT is charged for transporting goods between Calais and Dover, the most common route for GB trading with the EU. The zero-rating applies to both exports and imports, and if a transport charge only relates to part of a journey. For example, the journey from Birmingham to Dover would be zero-rated if it related to a subsequent export of the goods to a destination outside the UK.