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Sam
Sam, Accountant
Category: Tax
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I have chosen to be self employed because I suffer chronic

Customer Question

I have chosen to be self employed because I suffer chronic ill health. When illness has been in remission I have taken well paid, full time employment to build a buffer for the lean times. While employed I have continued my freelance work and claimed the expenses I normally claim when I am solely self employed. While employed I have also claimed transport from my place of employment (London) to home (DEVON) where I do my freelance work at weekends as that is where the facilities are for me to undertake the freelance work and because conditions ( lack of communications and inhospitable conditions) make it impossible for me to do the freelance work in London.
I employed accountants to do my accounts and submit my tax return for 25 years. They have consistently claimed one third of my housing costs as a business expense. An earlier HMRC investigation did not overturn that but I am currently being investigated and now HMRC wish to overturn than precedent of 25 Years and to deny me the expenses travelling (NOT COMMUNTING) home to undertake freelance work at weekends.
Can I ask a Tax Tribunal to take account of how I have structured my working conditions because I suffer serious ongoing ill health problems? I.e. Working at home and using a third of my home rather than a specific room. Can HMRC summarily overturn the accepted precedent of my claiming one third of my home costs as an expense? Can I make the case also that working from home is cheaper and more practical than renting an office? Can I claim travel expenses, not commuting to my employment in London, but travelling home to Devon to work on my freelance business?
I would be very grateful for your advice. My accountant has retired due to ill health and his successor wants to capitulate to HMRC on every point so I am at my wits end and having to submit an appeal to the tax tribunal on my own.
Submitted: 3 months ago.
Category: Tax
Expert:  Sam replied 3 months ago.

Hi

Thanks for your question - I am Sam and I am one of the UK tax experts here on Just Answer (ex HMRC and have my own accountancy business)

First I will advsie the travel costs to and from place of EMPLOYMENT are not allowable - these costs should have been borne by you personally and not claimed as a business expense as not wholly and exclusively arising in the course of performing your duties, but incurred to enable you be at a place where you performed said duties.

But tell me more about the travelling expenses you incurred to undertake the self employment freelance work as your travel home from London would be a cost you should suffer yourself but travel costs once back in Devon to perforn freelance work would be allowable.

Also if you have no actual room set aside for the self employment which then should have been restricted for the actual time spent using that room then the third of household expenses is excessive - and whilst this might be cheaper then renting an office you can only have whats fair in terms of out of pocket expenses.

So perhaps you could advsie me

1) where do you stay weekdays when working in London with employment and do you make good these costs yourself

2) How often do you actually travel home for weekends in Devon and how many of those weekends see you undertaking freelance work

3) What travel do you actually incur in Devon once you are back OR is all freelance work undertaken from the Devon home

4) Have you a room set aside in Devon and if so how many hours do you actually spend in that room for freelance work

If you do not have a room set aside, then what amounts and individual claims of costs have you been claiming a third of , and why a third- where did this ration come from ?

Any other information you feel is irrelevant (and I must advsie your ill health sadly has no bearing at all on your expenses, these are merely based on fact and actual costs you incur to perform the work

Please also expand on what you mean when you state " wants to capitulate to HMRC on every point" this is the only way, we as accountants can help you sort the wood from the trees in terms of genuine expenses due -

I look forward to a response

Thanks

Sam

Customer: replied 3 months ago.
Dear *****,Thank you for your swift and comprehensive reply. Let me answer your questions:1) Where do you stay weekdays when working in London with employment and do you make good these costs yourself? The tax investigation relates to 2011- 2013 when I was in employment. In London I lived in a prefab in a garden in South West London that a) had no phone, mobile phone or internet connection and b) was on the very noisy flight path to Heathrow and c) was adequate to sleep in during the week but, cold, noisy, void of communications and my files and resources that I kept in Devon for freelance work and therefore wholly unsuitable for work. I am a researcher/writer and my files, books and records are kept at my normal place of work at home.2) How often do you actually travel home for weekends in Devon and how many of those weekends see you undertaking freelance work? I travelled home most weekends and every weekend was spent doing some work, for example writing commissions or responding to queries that came in during the week or writing and research my books.3) What travel do you actually incur in Devon once you are back OR is all freelance work undertaken from the Devon home? The amount of travel related to my freelance other than getting to and from home in Devon is trivial. I travelled by train to Devon, by taxi to collect my car from a fiends house where it was healer to keep than at the station and then drove home to Dartmoor.4) Have you a room set aside in Devon and if so how many hours do you actually spend in that room for freelance work?If you do not have a room set aside, then what amounts and individual claims of costs have you been claiming a third of , and why a third- where did this ration come from ?I do have a room that is nominally my working space and where I store many of my books and files but my reading, writing and research as well as interviewing those who come to the house takes place in the living room and kitchen.The ratio of one third was suggested by my accountant. I had previously claimed 25% but he felt one third was justified. I claim one third of rent, council tax, electricity, heating, and miscellaneous expenses including tea and coffee. The ratio went unquestioned in an earlier "random" tax inspection.The silliness of all this is that I use my brain as a working space and carry it with me where ever I go. I do however not claim any expenses, despite it being the source of some of my most create ideas, when I am, for example, walking on the moor!As far as the accountant I inherited is concerned, the original bill from HMRC was £14,000 but he did not managed to reduce it. An accountant who helped me briefly was able to reduce that to £6,000. I have more details of what is demanded but not with me.I only discovered your service today and despir being way from home launched into using it in the hope of salvation! I am therefore conducting this correspondence in my IPad which is not wholly satisfactory. I also don't have all the papers with me so I hope if you have further queries it can wait until I am home tomorrow.
Regards,Henry
Expert:  Sam replied 3 months ago.

Hi Henry

Thanks for your response and the additional information

1) then the costs to travel to and from Devon are not permitted as travel expenses either for employment or self employment as each of these journeys merely put you in a position to be ready to attend employment/self employment

Only that trivial travel whilst in Devon is allowable I am afraid (so nor is the car travel from your friends house to Dartmoor)

And any rental costs for the prefab I am afraid also would not be allowable, nor any food/drinks during the time in London as we all have to eat to live

2) The amount of expenses you claiemd for the house is way over an acceptable amount - in this room you set aside you at a push could have claiemd the room ratio (so if you have 5 rooms in the property then 1/5th) which then would need to be restricted by the actual time spent there - but only for heating and lighting - nothing else - the fact you then conducted interviews in the living room/kitchen as well as your research and reading - would as an alternative allow £3 per week claim - but I stress this would be either/or and HMRC would in fact argue against the room set aside as it seems you did nothing but store books and files here but not actually conduct any actual work there) So had I been your accountant I would have advised just £3 a week

But might I advsie even had this room be used for all aspects of your freelance work a third was excessive and rent should not have been claimed nor council tax - as you incur this personally not as running a business and a small amount for tea and coffee - the ratio of additional expenses used for meetings/interviews for your "clients"

Sadly our brain power costs nothing to run in the business expenses world - so nothing to claim there I am afraid.

If you wish to wait until you are back with your papers and a better mode of communication then lets do that. But I fear the accountant that represented you has claimed incorrectly - and there (in my humble opinion) no appeal route here as you cannot uphold arguing the legitimacy of these over-inflated expenses claims 0 and I am sure you can appreciate I would not be doing my job property is I didn't advsie as such.

So do let me know if I can assist further - and if easier once you are with your papers, we do offer a telephone service. although I am afraid this does incur an additional charge (of which all accountancy and Just Answer costs are an allowable business expense!!)

But if you have enough input - then it would be appreciated if you would rate me for the level of service I have provided *or click accept) as this ensures Just Answer credit me for my time (but we can still continue to communicate of you have any additional support with this)

Thanks

Sam

Customer: replied 3 months ago.
Hi Sam,You have asked me to rate your service. I am afraid I am bogged down at present and have not finished with you yet and I will be very happy to rate you when we are done! Could you bear with me and I will respond when I am able?Kind regards,Henry
Expert:  Sam replied 3 months ago.

Hi Henry

I will await the further clarification/questions you need from the answers I have provided

Thanks

Ssam

Customer: replied 3 months ago.
Dear *****,Sorry for the hiatus is our correspondence and apologies now for bombarding you with paper.I have reached the stage where I am preparing an appeal to the Tax Tribunal against the tax and penalties demanded by HMRC. I have decided to send you my draft appeal so that you have the full picture (see attached).I also attach correspondence from the HMRC inspector. The main letter was his response to my asking him to put in a nutshell what I owe as, after being let down by my latest accountants (see appeal text) I am conducting the appeal myself as I did not understand where the investigation had reached and what was in fact being claimed by HMRC. I do not have the money either to pay an accountant (other than yourself of course) or to pay the demanded tax and penalties that, in any event, I feel are grossly unfair.You have very clearly answered the issues relating to my claiming one third of working from home expenses, which you consider excessive; what I claimed for travelling to Devon to work on my freelance, which you don't feel I can claim and the issue of my health which, in the nicest possible way, you dismiss as a factor.All these issues remain prominent in my appeal to the degree that I appear to be completely ignoring your advice. Bear with me. From what you say on those three points it would appear I have very little but to frame my appeal:a) On the grounds that a precedent was set for the proportion of use of home as an office I have claimed and that I have taken decisions based on that precedent. That said I do not think that I can claim as an expense the accommodation I rented in London because, as I clearly state, I did not do my freelance work there because it was impossible to do so. I should also note that in this investigation where an HMRC inspector reviewed my case she seems to have accepted the use as home as an office claim as she has dismissed much of what was originally claimed.b) Arguing that I should be able to claim the journeys to and from Devon and this did not constitute commuting as I was travelling and travelling as if going to the office of a client for which I would normally charge. If I don't claim for the use of my accommodation on London surely I can claim expenses in respect of the freelance work I undertook?c) On the basis that I have organised my working life around the fact that I suffer from ill health and that I have not sought to claim any benefits but continued trying to make ends meet. If nothing else I hope that the Tribunal will show some compassion and understanding of the difficulty I have earning and will have paying the HMRC bill and penalties.As things stand I cannot see what other arguments exist for me to reduce the tax bill and penalties. Looking particularly at the letter from the tax inspector, Andrew Heath, are you able to suggest any ideas, strategy or arguments that I can put forward to try and reduce this bill and the penalties? The penalties in particular seem to be grossly unfair as I appear to be being discriminated against on the grounds that I followed the advice of my accountant in claiming for use of home as an office and because I suffer ill health.I am currently living on funds I have drawn down from my pension. It is not what I want to do but as I have had no other income for the past couple of years because of my health and other circumstance I have been obliged to do so. Of course ultimately it becomes self defeating as the pension shrinks and I will be able to receive less and less income from it.My fear is that if the full amount of the tax bill and penalties is demanded that HMRC can raid my pension scheme for payment. Can you tell me whether they can?You can imagine that I would like to settle this matter as soon as I can as it is a major distraction in my seeking work and getting on with my life so your help is greatly appreciated.Kind regards,Henry
Expert:  Sam replied 3 months ago.

Hi Henry

Thanks for the further information - which I am sure you will not object is now proving to be far more involved than perhaps your first post suggested.

But to help you see if there is an appeal still to be established - and whether you wish to take this forward lets look at each of your points raised and please note I will play devils advocate- as I will use HMRC legislation to counter argue your points (which is the response they will make)

a)) What precedent was set ? HMRC do not appear to have agreed this precedent prior to this current position - and whilst I agree there is a claim to be had, not as excessively as the one you had made over the years (even if this was then inflated with the accountants recommendations) so please do expand - where you feel your arguments lay

b) The travel to and from London to Devon is commuting for the reason provided, each journey put you in a position to commences the work or self employment duties, but neither were undertaken IN THE COURSE of duties - so only costs incurred when in Devon undertaking freelance work (so after you arrived and before you left) could ever be considered in the first instance - so under what legislation do you feel an argument could overturn this

c) I am afraid this is not a valid argument - whilst its admirable that you push on to earn a living despite the difficulties you face, this is a personal attribute that is testimonial to you as an individual and not a position that could be used to change the facts and legislation.

If you wish me to spend time looking at Andrews Heath letter and seeing if I can find any successful way to counter argue - then I am afraid I will have to send an additional services request to charge an additional fee- as this will be on a par with the tribunal work I offer my clients with my own practice, and they are time consuming. The only difference (which is then reflected in the price) is that I cannot represent you as per our agreement with Just Answer that all work is undertaken through their services and that I will try and establish pointers to forge arguments - but I will also be candid and honest where there are none to be had.

OR I can offer a telephone service (an additional fee comes into play I am afraid) I can then review the correspondence and we set up a mutual time - where I can provide my contact details and we can discuss this and debate the issues out and see if we can find a pathway for you with this.

let me know how you might like to proceed, or if you require any additional help

Thanks

Sam

Customer: replied 3 months ago.
Dear *****,Thank you for your reply. A question you overlooked whether HMRC is able to seize my pension fund in order to satisfy its claim against me. Obviously this is a matter of considerable concern. I would understand if they could claim income on the basis of the yield from my pension (or an annuity) but because I have been forced to draw down capital from my pension to live off and these sums are considered by HMRC as “income” and I am taxed on them, I am concerned that they will seize part of my pension to pay this claim if my appeal is unsuccessful. This obviously has serious implications for the future yield from my pension. Please could you clarify what they can and cannot do as regards ***** *****?Could you also please explain your conclusion that this case is more complex than you appreciated from my original email? Did you read the letter from Mr. Heath? From that I concluded from his letter was the bulk of HMRC’s claim relates to the use of home as a business expense and whether my travelling to Devon is or is not commuting.Please can tell me what you consider to be the more complex issues and what it would cost for you to deal with those complexities?As regards ***** ***** I suggest has been set: it is unclear to me whether the consistent advice given to me by a number of separate firms of professional accountants over the years was wrong or whether HMRC makes up the rules as they go along.During the period I have been self employed I have claimed one third of my housing costs as a business expense. I was subject to an HMRC investigation in 2010 and HMRC found one trivial mistake that was rectified without penalties.Moreover, during the current investigation, when the inspector decided “mistakes” had been made in my 2012-2013 return thus justifying his trawl through four previous years, a review by another inspector overturned his rulings. That means the current claim relates solely to the period 2011-2013 coinciding with the period I was employed at Rio Tinto when I rented the pre-fab in London and travelled to Devon to undertake freelance work.I cannot otherwise but conclude that the acceptance of my claiming one third of use of house a business expense for 25 years, the HMRC having had the opportunity to review the proportion in 2010 but not challenged it and the dismissal of claims in this investigation outside the period 2011-2013 establishes a precedent that I can claim one third of my housing expenses as a business expense. I realise you consider the proportion excessive, and you have said so. Having accepted the proportion for so long, having had the opportunity to challenge it in an earlier inspections but having failed to do so and having allowed me to act on the basis of the claim, I claim a precedent has been set.To say that my journeys to and from Devon were not IN THE COURSE of my duties does not clarify the position. In the course of what duties and duties to whom? If I have a duty it is to myself to earn a living and my duty is to find work, undertake the work and get paid for the work I do.In the course of my duty to earn a living I was required to put myself in a position where I could perform those duties. I have explained why a) I could not undertake such duties in London and b) why I required to travel to Devon to complete my duties.When I have performed freelance work, say, in Frankfurt and claim the travel expenses to and from that city they have always been considered legitimate business expenses. If I travelled from what was my home in London to “an office” in Devon (for the same of argument “an office” that was not my home) to complete work for clients or potential clients I cannot see the difference in the legitimacy of my claim.It appears in this case that the inspector has identified “an office” as my home and therefore considers the claim unreasonable solely because it is my home and not an office. If I had not worked from home but had travelled to an office I rented in Manchester for the purpose of undertaking freelance work would that have made a difference?I do appreciate that you have been playing Devil’s Advocate but similarly I have been trying to argue my case with you as someone who has some insight to how the “mind” of the HMRC works.Please could you tell me what you think is complex about my case and what it will cost to ask you to take the case on.Regards,Henry
Expert:  Sam replied 3 months ago.

Hi Henry

As you have access to funds then worst case scenario (if all other avenues have been exhausted or no payments are forthcoming) the yes they can ask that the pension fund be used to pay the amounts owed.

However - if the pension pot is not at a stage where it is viably available (you are of pension age) then they cannot take anything from it.

Yes down draws are income and liable to tax (Only the initial 25% of a pot at the appropriate time can be taken tax free)

I have not read any of the correspondence form HMRC as I have gone into this question answering what you asked, and now you are asking me to get involved in direct communications and HMRCs findings (this is wwere I refer to the fact this is getting more complex as you now are asking me to act in a official capacity with real time information, rather than offer advise and information based on your original post)

If you wish me to read his findings and conclusions and comment on them then this is where the additional services and costs some into play I am afraid (this is clearly Just Answers policy)

If you wish me to proceed, then I can send an additional services request unsuspecting a fee I feel fair to

1) Look at the correspondence and

2) Comment on those relating to travel to and from Devon and also the working from home costs and how they tie win with the legislation and advsie already given and

3) Whether I feel there is any scope of arguing these points.

This would then take this onto being a good half how to hours work - along with any potential follow up questions so I can send a proposal which you can choose to accept or not - does that sound reasonable

But I do fear you will not like my findings as I can assure you (as ex HMRC) that they do not make the rules up as they go along - but they do I accept make mistakes, but so far this does not seem to be the case where, as I gave you my expert answer (based on legislation) from the beginning of this Q & A exchange and this has not deterred so far, and if there was ANYWAY I could better this for you - I most certainly would

Just because HMRC did not challenge that point of home expenses before does not set a precedent if they reviewed it AND then accepted it - that DOES set a precedent and your arguments towards what has previously been allowed, such as trips to Frankfurt - is completely different as this was not from one place of abode to another -

Your heath and the need to work as you did has no bearing - might ir surprise you to learn I have a condition that prevents me from holding down standard employment - so self employment allows me to work at night - or stop when I need to - so I do not always go to my office away from home and often divert calls and work to my home - YET my travel to and from the office space I use is NORMAL Travel and I cannot claim as an expense - but I have to do this so I can manage my workload and clients - and I work from home nearly all the time now - Would this afford me a different business expense claim- no it does not so I work as per HMRC ruling ONLY and claim only what is a genuine business expense until such time that might incompletely change ans then I will revisit what is then allowable (so I spend at least 50 hours a week working from home and claim £3 a week!

I do not usually divulge my personal life to customers but I need you to see I DO understand

I shall send you an additional services request -

Thanks

Sam

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