Relocation expenses, taxable benefits
Discussion
A "friend" is in dispute with IR about taxable benefits.
He joined a startup company as a co-director, one of three, on the understanding that accomodation expenses for the first "year or so" would be paid, until said start-up proved viable enough to properly relocate.
He took a rented house for twelve months, and claimed the rental back "on expenses" as agreed.
The startup proved not to be viable, all but one of the directors resigned, and all the staff were made redundant, after 18 months of trading.
The IR are now claiming the rent reimbursed was a taxable benefit and wanting their pound of flesh.
We are talking tax on £7000 here, so its worth arguing about!
My view is that the expenses were covered by Sections 277 and 278 ITEPA 2003 - as detailed in EIM03110. This details the £8000 exemptions for relocation expenses, Any tax experts out there care to comment?
Some other, possibly relevant, details:
One other of the co-directors also used the same rented house, though the first director bore all the costs other than the reimbursed rental.
The directors family did not relocate, and the family home was not disposed of (just as well when things didn't work out).
One remaining director bought the shares of the others and now keeps the company as a dormant company to retain valuable software licences.
He joined a startup company as a co-director, one of three, on the understanding that accomodation expenses for the first "year or so" would be paid, until said start-up proved viable enough to properly relocate.
He took a rented house for twelve months, and claimed the rental back "on expenses" as agreed.
The startup proved not to be viable, all but one of the directors resigned, and all the staff were made redundant, after 18 months of trading.
The IR are now claiming the rent reimbursed was a taxable benefit and wanting their pound of flesh.
We are talking tax on £7000 here, so its worth arguing about!
My view is that the expenses were covered by Sections 277 and 278 ITEPA 2003 - as detailed in EIM03110. This details the £8000 exemptions for relocation expenses, Any tax experts out there care to comment?
Some other, possibly relevant, details:
One other of the co-directors also used the same rented house, though the first director bore all the costs other than the reimbursed rental.
The directors family did not relocate, and the family home was not disposed of (just as well when things didn't work out).
One remaining director bought the shares of the others and now keeps the company as a dormant company to retain valuable software licences.
The legislation to which you refer covers removal and relocation expenses, not accommodation expenses incurred after you have moved. Your friend might be able to argue that the benefit of the accommodation was shared with others and that the taxable benefit should be apportioned accordingly.
>> Edited by octanebooster on Thursday 5th January 23:57
>> Edited by octanebooster on Thursday 5th January 23:57
octanebooster said:I'm not sure I understand why the rental is not a relocation expense; isn't it covered by EIM03117 - Removal or transfer costs: expenses and benefits to which Section 271 ITEPA 2003 applies: travel and subsistence: temporary living accommodation, or am I/is he just clutching at straws?
The legislation to which you refer covers removal and relocation expenses, not accommodation expenses incurred after you have moved. Your friend might be able to argue that the benefit of the accommodation was shared with others and that the taxable benefit should be apportioned accordingly.
If this argument fails then apportionment would be my next argument. Quite how that would be done I'm not sure, and presumably would result in IR going after the other director for tax on benefit as well.
With the benefit of hindsight it would presumably have been better for the accomodation costs to have been covered by some kind of bonus which covered the rental after tax/NI were deducted.
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