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Jen Kinnear

Jen Kinnear

IR35 ruling in contractor's favour

IR35 ruling in contractor's favour

This blog was previously published on LinkedIn on 19th April 2018.

HMRC has been defeated in a new ruling affecting contracted workers assessed under the IR35 rules. It is an unusual decision given the nature of the engagement, and has done nothing to help clarify the already complex situation. The decision has also raised concerns over the use of HMRC’s online employment status tool.

The First Tier Tribunal (FTT) ruled in favour of Mark Daniels who provided construction management services via a personal service company. HMRC contended that a contract covering 2012/13 and 2013/14 should have been caught by IR35. However, the FTT found that the engagement was correctly categorised as self-employment.

The FTT looked at a range of factors to decide if Daniels was self-employed or not. The most important factors that led to the FTT’s decision were:

• Daniels had no entitlement to a notice period, sick pay, holiday pay, or any employment benefits. However, the vast majority of contractors don’t normally enjoy these benefits.

• Daniels was not being controlled or managed by the client beyond what was typical of a large construction project where there is a clear structure.

• Daniels was paid a daily rate, rather than a weekly or monthly rate.

The FTT declared Daniels self-employed despite the fact that he was not allowed to provide a substitute in his absence (and was not in position to provide a substitute in any case). He also took no financial risk, and the client provided safety equipment. These three factors would normally be strong indicators of employment.

The HMRC’s online employment status tool responds to the facts of Daniels’ case with, “We're unable to determine the tax status of this engagement”.

However, HMRC will stand by any non-IR35 outcome given by the status tool, provided the information submitted is accurate.

Furnished Holiday Lets - Inheritance Tax

Furnished Holiday Lets - Inheritance Tax

Inheritance Tax (IHT) is another factor which landlords of Furnished Holiday Let (FHL) properties should consider.

Whether or not a particular property can qualify for Business Property Relief (BPR) for IHT purposes remains a tricky area. If BPR applies, you can get relief of either 50% or 100% on the asset, which can be passed on during your lifetime, or as part of your will.

As demonstrated in the case of HMRC v Nicolette Vivian Pawson 2013 (the Pawson case), the level of services provided highly impacts on whether a FHL landlord is entitled to claim BPR. The extent of services provided must differentiate from those that would be provided by a standard landlord. An increase in the additional services which can be provided in turn increases the chances of a successful BPR claim.

Additional facilities and services might include:

  • operation of a website
  • personal welcome on arrival, to show customers around the property and ensure they know where everything is and how it works
  • facilities for accommodating pets
  • swimming pool and maintenance thereof
  • barbeque facility and fuel supplies
  • access to games and sporting activities
  • arrangements for the enjoyment of local tourist activities
  • provision of a welcome pack
  • provision of some meals

The key to these additional services is it is not essential for all customers to use these additional services, they simply must be offered, many of which could be at an additional charge.

The more recent case of Vigne v HMRC (2017) however has cast doubt on this judgement, arguing that it should not be assumed that a business is an investment business and that the proper starting point is to make no assumption one way or the other.

This decision means that business relief may now be available on activities which would have previously been challenged.

HMRC do provide a clearance service, in which they will advise whether or not your FHL business qualifies for BPR. This service is only worthwhile using if you are confident that the relief will potentially be due.

As things currently stand, a standard FHL business is unlikely to qualify for BPR and although the Vigne case has cast doubt on the Pawson decision, it should be noted that the Vigne case is currently a First-Tier Tribunal case which could be appealed by HMRC. It could however prove to be an unexpectedly significant case in terms of the availability of BPR for FHL’s and the level of services which are required to be provided.

If you are looking for advice relating to your FHL, please contact French Duncan Tax Senior Jen Kinnear either by email to j.kinnear@frenchduncan.co.uk or call 01786 451 745.

This blog is part of a series - you can see all blogs here:

1. Furnished Holiday Lets - an introduction & your obligations

2. Furnished Holiday Lets - qualifying conditions & elections

3. Furnished Holiday Lets - Income Tax & Capital Gains Tax

4. Furnished Holiday Lets - Non Resident Landlords

5. Furnished Holiday Lets - VAT

6. Furnished Holiday Lets - Making Tax Digital (MTD)

7. Furnished Holiday Lets - Conclusion & Services

Furnished Holiday Lets – Conclusion and Services

Furnished Holiday Lets – Conclusion and Services

To conclude our series of blogs, there are a variety of complex tax rules, reliefs and allowances which apply to FHLs, many of which must be considered on an annual basis.

Fulfilling your tax reporting obligations as a landlord is a continuous process, and by forward planning, considering the rules carefully and utilising the reliefs available to you, tax liabilities can be minimised and your FHL can benefit from reinvestment.

French Duncan can offer the peace of mind that your tax affairs are being completed correctly to avoid any potential penalties that could occur if errors are found from an HMRC enquiry, and that you are fully utilising any tax reliefs available to you.  

The services we could offer are:

  • Completion of individual tax returns to show income from rental properties.
  • Where there is a rental business, completion of both partnership tax return as well as individual partners tax returns.
  • Review joint ownership position to determine if it meets relevant conditions to be deemed a rental business.
  • Non Resident Landlord (NRL) individual tax return.  Review of income position for Non-residents to establish if qualify to not be taxed at source, as well as completion of relevant NRL forms.
  • Review the structure of ownership for rental properties so that individuals are taxed in the most efficient way.
  • Planning advice should individuals be adversely affected by changes to loan interest relief.

If you have any queries, please get in touch with a member of our team.

If you are looking for advice relating to your FHL, please contact French Duncan Tax Senior Jen Kinnear either by email to j.kinnear@frenchduncan.co.uk or call 01786 451 745.

This blog is the last in a series - you can see the first six blogs here:

1. Furnished Holiday Lets - an introduction & your obligations

2. Furnished Holiday Lets - qualifying conditions & elections

3. Furnished Holiday Lets - Income Tax & Capital Gains Tax

4. Furnished Holiday Lets - Non Resident Landlords

5. Furnished Holiday Lets - VAT

6. Furnished Holiday Lets - Making Tax Digital (MTD)