HMRC audit going badly

[Craig@Clarity]

... or HMRC re-define Europe as Zone 1

I'm not a betting man!

[northernladuk]

About £201.60 a month

How does the 24 month rule affect things like claiming broadband and use of home office? I do a lot of plan B work on the weekends which is run through the LTD..

It's no wonder your blood is boiling over this if you continue not to try and understand the situation and why it exists and just throw random questions in to the mix. This policy obviously affects you so why are you making no attempt whatsoever to understand it?

You are a business and there are certain rules in place for reasons. If you understand the reasons it is in place and accept it you might be able to handle it better. It is a serious bummer don't get me wrong but it's part of contracting. If you want everything nice and simple then go back to permie land.

At the end of the day you say you spend £200 a month and are upset you can't claim it. Do you actually understand how much difference that actually makes in your pocket? You are not £200 down as you probably think.

[eek]

It's no wonder your blood is boiling over this if you continue not to try and understand the situation and why it exists and just throw stupid questions in to the mix. This policy obviously affects you so why are you making no attempt whatsoever to understand it?

You are a business and there are certain rules in place for reasons. If you understand the reasons it is in place and accept it you might be able to handle it better. It is a serious bummer don't get me wrong but it's part of contracting. If you want everything nice and simple then go back to permie land.

At the end of the day you say you spend £200 a month and are upset you can't claim it. Do you actually understand how much difference that actually makes in your pocket? You are not £200 down as you probably think.

As someone quoted on page 8 he if you are caught by the rule he would be about £40 worse off (£80 if he is in the 40% bracket).

To be brutely frank its not worth worrying about unless his rate is less than £100 a day.

[BolshieBastard]

Apologies for not welcoming myself formally, but I don’t do a lot of internet talk and I’ve only just found this site as I really need some advice as I’m finding myself in a very unpleasant, and possibly life ruining position.

Basically, I set up my limited company in March 2006 and with the exception of three and a half months at the beginning of 2010, have been in full employment; however, I have always been aware of the 24 month rule, and as such have ensured that no contract ran or was even renewed for up to or more than this period. Without naming names, the periods I have spent at various companies are as follows:
Company A – Mar06 to Jun06
Company B – Jun06 to Feb08
Company C – Mar08 to Oct08
Company D – Oct08 to Dec09
Company E – Apr10 to Present

I was under the impression, that as a contractor, as long as no contract was to run for more than 24 months, I could claim expenses, which I have done; however, I have been honest and only claimed for my train tickets, mileage to and from the station, £4 a day for subsistence and an eye test every two years. This does not sound like a lot, but my work is finance based and therefore in central London, and I live in Bournemouth, so the train ticket is quite pricey (close to £600 per month currently) which means that my expenses have averaged about £8,000 a year for the last five years. Before anyone jumps to any conclusions, I am by no means a high earner; that figure is not far off 20% of my gross for the year; however, even by paying this amount for travel, I am (or at least thought I was) still far better off than working locally, as the wages are so poor in Bournemouth.

This situation has ticked along with no problems for 5 years, and I never thought anything was wrong as my accountants never queried my expenses; then at the end of last year, the HMRC decided to audit my personal tax for the 2008/2009 tax year. Firstly they wanted all my receipts and my mileage log for that year, which I provided, then they requested copies of all my contracts for that year, which again I provided; then they requested copies of my contracts to the start of my limited company, which I thought was an odd request, but I also provided. Then about a month or so ago, I received a letter, the gist of which was that even though they agreed all my contracts had been independent, as all the locations had been within “The City of London”, and no significant change had been made to my travel, then the geographical location of “The City of London” was deemed my “permanent” place of work, all my expenses were discounted, and I owed them a further 3 grand.

Now obviously in my time contracting 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. Most in fact said it sounded like (expletive deleted) because you can’t be a permanent employee of a geographical location, it’s just unfortunate that 99.9% of roles in my line of work are going to be based in that area.

I also scoured the HMRC website and rules, but the only mention of this I could find was rule EIM32080 - Travel expenses: travel for necessary attendance: definitions: temporary workplace: limited duration, the 24 month rule:
EIM32080 - Travel expenses: travel for necessary attendance: definitions: temporary workplace: limited duration, the 24 month rule
At that time the examples they sited related either to contracts being extended over the 24 month period, or employees working at various different sites or shops within a set area, but for the same company. I went through the examples diligently and there was not one that cited a complete change in employer along with new terms, rates and role.

However, 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):
Travel expenses: travel for necessary attendance: definitions: temporary workplace: example
Now, I’m not infallible and there is a possibility 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.

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. The HMRC are disallowing my claim for travel and subsistence on the grounds that no substansive work was carried out at my home address/the registered office of my limited company. This goes against everything I, and everyone I know has ever been told about contracting.

There are two things that now worry me. Firstly, everyone I know who contracts or has previously contracted are now liable to be clobbered with a bill from the HMRC; and secondly, the overall size of the bill I could face. If I absolutely have to, then I can (begrudgingly) swallow a 3 grand additional payment; however, if all my claims are disallowed, then that could potentially leave my open to a similar bill for each of the other 4 years on my personal tax and a similar amount on my corporation tax for all five years, and I simply don’t have a spare 20 to 30 thousand... not many people do. I’d either have to try and get work abroad and pay it back slowly (or never come back), or go bankrupt.

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?

You are banged to rights and will have to stump up.

Although the 2 year rule is in force, it also covers work in the same geographical location. So, although no contract has lasted 2 years or more, you've working in the same location ie city of london, for a lot longer.

Im surprised your accountants didnt point this out to you. I think you need to change accountants to one who specialises in IT. Next, you need to sue your old accountants for landing you in the tulip.

I never work in the same "geographical" location for more than 2 years. I did once but stopped claiming travel expense.

You should have taken work at a totally different location every 2 years to make sure you dont fall foul of the rule.

[xoggoth]

How does the 24 month rule affect things like claiming broadband and use of home office?

It doesn't. If you do significant work from home there are certain things you can claim for without time limits, nowt to do with temporary workplaces. £3 pw for home as office, any more and you have to show that business use is actually costing you that much.

Main criteria for anything is that it has to be something you got specifically to conduct the business or the business use can be shown to cost you more. If you already had broadband it would not normally be allowed as business use involves no extra cost. Similarly, you can charge for business phone calls as that is a measurable extra cost, not the line rental you had already.

[Jog On]

It's no wonder your blood is boiling over this if you continue not to try and understand the situation and why it exists and just throw random questions in to the mix. This policy obviously affects you so why are you making no attempt whatsoever to understand it?You are a business and there are certain rules in place for reasons. If you understand the reasons it is in place and accept it you might be able to handle it better. It is a serious bummer don't get me wrong but it's part of contracting. If you want everything nice and simple then go back to permie land.

At the end of the day you say you spend £200 a month and are upset you can't claim it. Do you actually understand how much difference that actually makes in your pocket? You are not £200 down as you probably think.

Please walk me through these above observations you've made..

As someone quoted on page 8 he if you are caught by the rule he would be about £40 worse off (£80 if he is in the 40% bracket).

To be brutely frank its not worth worrying about unless his rate is less than £100 a day.

If my rate was less than £100/day what difference would that make? £40 * 24 = £960. Do you know where Canary Wharf is?

I'm only in month 12 now so don't know why I'm getting so wound up about it all. I think it's the principle of it that's making my blood boil a bit.

Can't someone get annoyed at HMRC on other people's behalf anymore without getting 'out-clevered' and patronised by someone who hasn't even read the whole thread?

[eek]

If my rate was less than £100/day what difference would that make? £40 * 24 = £960. Do you know where Canary Wharf is?

Yes, arse end of London if you live where I do. The total is £2 a day and compared with what you would be stung by if you used a rail company (Network southeast, Chilitern Railways) rather than just London Transport it really, really is peanuts.
And they probably cost more at any of the pubs around there.

[Jog On]

Yes, arse end of London if you live where I do. The total is £2 a day and compared with what you would be stung by if you used a rail company (Network southeast, Chilitern Railways) rather than just London Transport it really, really is peanuts.
And they probably cost more at any of the pubs around there.

Yes everything is overly expensive here.. I still maintain that it's the principle of this whole 24 month thing not being limited to individual clientcos is what's got my back up.

£2 a day is £2 a day - it may seem like peanuts but they're my bloody peanuts Goddammit!

[northernladuk]

Please walk me through these above observations you've made..

Policy affects you situation example below, plus the fact you are asking a lot of questions

Luckily this is a hypothetical but very probably situation. I'm on Month 11 of about 14 in Canary atm...

So if I did another 12 monther in the city would I be caught?

Random question showing misunderstanding

How does the 24 month rule affect things like claiming broadband and use of home office? I do a lot of plan B work on the weekends which is run through the LTD..

You are not £200 down observation is the fact you are getting so upset about it when really you were only gaining the taxable part of it anyway as pointed out on page 8

If my rate was less than £100/day what difference would that make? £40 * 24 = £960. Do you know where Canary Wharf is?

But if you were permie it would cost you that anyway so you are not losing anything any which way?

Can't someone get annoyed at HMRC on other people's behalf anymore without getting 'out-clevered' and patronised by someone who hasn't even read the whole thread?

Not without showing some understanding of exactly why you feel the need to vent. Nothing worse than people going off on one without understand the nature of the problem and the real outcome. Makes you look a bit daft when you find out that actually it is valid, fair and hardly affects you anyway.

Sorry

[SueEllen]

You are banged to rights and will have to stump up.

Although the 2 year rule is in force, it also covers work in the same geographical location. So, although no contract has lasted 2 years or more, you've working in the same location ie city of london, for a lot longer.

Im surprised your accountants didnt point this out to you. I think you need to change accountants to one who specialises in IT. Next, you need to sue your old accountants for landing you in the tulip.

An accountant is not your company's financial director so don't expect them to pick up on every single expense you have put through unless it looks odd compared to other contractors, or you have specifically asked them if it's an allowable business expense.