HMRC audit going badly

[northernladuk]

It is of course possible to move your registered office every 2 years...what happens then?

Makes no difference. The rule is about your place of work being temporary or permanent. Nothing to do with where you set off from.

[LisaContractorUmbrella]

Excellent stuff Lisa. I now feel all knowing. Once again and already said so many times, its wrong in principle anyway. If you are in business on your own account you should be able to claim expenses against the revenue brought into that business. I work in the City and earn significantly more than I would if I worked outside. It costs me more to get there. HMRC is still the net winner. If its ok for every day of 24 months what is wrong with month 25 and after.

It is of course possible to move your registered office every 2 years...what happens then?

Trouble is Emigre you are trying to apply logic - that will never work against HMR&C

Only if your registered office is your home and you move home every 2 years

[MarillionFan]

Nothing to add but apart from to say, great thread. Completely unaware of this particula rule.

[Robot]

Does anyone have any advice, or even better has anyone been in a similar situation or know someone who’s been in a similar situation?

Review your engagement letter you have with your current accountants, I'm sure they must be negligent on the part of your (qualified?) accountants to get it so badly wrong.

Review their website, are they saying their contractor specialists, if yes, look through it to see if it mentions travel rules / 24 month rule.

HMRC could now review all your current accountants clients, especially as they got it wrong on a point of principal.

[Hex]

I wrote the following a few years ago in this thread: http://forums.contractoruk.com/accou...ar-rule-3.html

According to Bob Jones the Taxation expert on shout99 website, the difference between sites has to be viewed in context of the whole journey. So if you were travelling to London from Scotland then whether you go 10 miles east or 10 miles west at the end of a 300 mile journey would make little difference to the journey itself. If you were only doing a 15 mile journey it would.

There is a post here going in to this further:

http://www.shout99.com/contractors/s...le.pl?id=46521

You may need to register to see the whole thread above, but it is worth it. Bob Jones sometimes posts on here too and he is ex HMRC.

[northernladuk]

I wrote the following a few years ago in this thread: http://forums.contractoruk.com/accou...ar-rule-3.html

According to Bob Jones the Taxation expert on shout99 website, the difference between sites has to be viewed in context of the whole journey. So if you were travelling to London from Scotland then whether you go 10 miles east or 10 miles west at the end of a 300 mile journey would make little difference to the journey itself. If you were only doing a 15 mile journey it would.

There is a post here going in to this further:

Shout99 : showarticle

You may need to register to see the whole thread above, but it is worth it. Bob Jones sometimes posts on here too and he is ex HMRC.

I agree with the principle and reminds me we haven't mentioned a term that is often used in these discussions and that is 'geographical area' rather that terms of just a journey. Moving geographical areas is much more plausible as per the example above. This then means a journey was from somewhere in east Manchester and then you switch to West Manchester you are still in the same geographical area so good chance the clock is ticking.

Obviously this still needs an element of common sense. A move from just inside the west side of Manchester to just inside the east of Mersyside is different geo areas but only a few miles different will also fail.

One thing I do argue is the comment about 10 miles making a difference to a 15 mile journey. This is correct but 10 miles is just not enough of a change to consider resetting the clock, even if the change is from 10 to 25 miles so an irrelavent comment in the context of the topic. It is still too close and easily commutable.

[Clippy]

What is the general consensus on how long for the clock to reset between contracts before you can/should re-contract at a previous area/geographic location/city? Is it 2yrs?

[LisaContractorUmbrella]

What is the general consensus on how long for the clock to reset between contracts before you can/should re-contract at a previous area/geographic location/city? Is it 2yrs?

Ah no unfortunately the 40% rule then kicks in which is slightly more complicated

[Taxless]

“I was under the impression .... “

Did you specifically ask your accountant at the time or did you satisfy yourself this was the correct treatment?

“.. I never thought anything was wrong as my accountants never queried my expenses”

Did you ask them? What are the terms of your engagement (see your Engagement Letter)? If you asked for a cheap and cheerful compliance service then that is what you probably got and this is where it gets you.

“Firstly they wanted all my receipts and my mileage log for that year ............... then they requested copies of my contracts to the start of my limited company, which I thought was an odd request.....”

Depending on what they had found, they may have been stretching what they were still entitled to ask for, but that is too late now. Your accountant should have told them to back off if they did not have the right to access this detail.

“... I’ve developed a network of other contractors, both in finance and IT, agencies and accountants, and without exception none of them knew of this clause, including (I’ve inferred from correspondence content) my own accountants.”

I’m afraid it doesn’t change anything. If your accountant has really said/implied this then you have an issue with them. Whether you have any recourse will depend on the terms of your engagement.

“ .. looking again tonight, it does appear as though the HMRC has made some changes to their site and the following example is my situation to a tee (conveniently).... I may have missed it the first time, but I’m fairly confident I would have found this as it’s linked right to the main page.”

I can’t be certain, but I am sure this was in their guidance previously.

“My accountant’s legal team has told me that the HMRC are clamping down on such claims, especially as when the value is considered as being quite high; the argument they are presenting relies on section 339(7) of the ITEP act 2003, which is being interpreted in a very broad sense”

If there is cash available then HMRC will try and attack it. I have ranted in other posts about their target to raise an additional £5bn annually by 2015, so we are fair game at the moment.

This is not law, it is HMRC’s interpretation of the law. Subsection 7 says:

“An actual or contemplated modification of the place at which duties are performed is to be disregarded for the purposes of subsections (5) and (6) if it does not, or would not, have any substantial effect on the employee’s journey, or expenses of travelling, to and from the place where they are performed.”

At first glance this would imply work with the same employer, but HMRC unsurprisingly want to interpret it a bit wider, because that raises more tax.

“ ..... the overall size of the bill I could face.”

You either roll over or you fight them, through an accountant.

I am not aware of anyone taking HMRC to tribunal over this and don’t have time to research it just now, but I would think you would be in for a tough fight.

If you bought fee protection insurance through your accountant then the insurer will give their opinion on whether you are likely to succeed or not by indicating whether or not they will pay for the cost of your accountant arguing with HMRC.

If HMRC are looking to settle on 1 year only, then it may be cost effective to accept this, move your location, move on and learn from the experience.

Have they mentioned other years, have they spoken of penalties yet?

[Martin at NixonWilliams]

I agree with the principle and reminds me we haven't mentioned a term that is often used in these discussions and that is 'geographical area' rather that terms of just a journey. Moving geographical areas is much more plausible as per the example above. This then means a journey was from somewhere in east Manchester and then you switch to West Manchester you are still in the same geographical area so good chance the clock is ticking.

Obviously this still needs an element of common sense. A move from just inside the west side of Manchester to just inside the east of Mersyside is different geo areas but only a few miles different will also fail.

One thing I do argue is the comment about 10 miles making a difference to a 15 mile journey. This is correct but 10 miles is just not enough of a change to consider resetting the clock, even if the change is from 10 to 25 miles so an irrelavent comment in the context of the topic. It is still too close and easily commutable.

I think HMRC's booklet 490 - Employee Travel (http://www.hmrc.gov.uk/helpsheets/490.pdf) would be a useful reference here, in part pages 28/29 (29/30 of the actual PDF) which is part 4.6 - 4.9.

4.7 States:

Sometimes it may be difficult to decide whether a change of workplace affects an
employee's entitlement to relief.
The basic principle is that a change in the location or boundaries of a workplace
will give rise to a new workplace where the change has a significant effect on:
• the journey an employee has to make to get to work, and in particular
• the cost of that journey.

The interesting part (as reflected in the example just above point 4.10) is that where the change in cost is significant even if the difference between the two sites as the crow flies is not the locations can be different.

Obviously this has to be used with care and within the 'City of London' the change in cost will probably not be significant if it is all within one tube zone but could add clarification to some situations.

Likewise, it is not clear if travel costs have to be compared on a 'like for like' basis i.e. using the same mode of transport.

Martin