Finance Bill

Written evidence submitted by the Association of Taxation Technicians (ATT) (FB 01)

Finance Bill 2016: Clause 24 – Fixed-rate deductions for use of home for business purposes

A Introduction

1 Clause 24 proposes amendments to sections 94H and 94I of ITTOIA 2005 which provide respectively for:

· fixed rate deductions in place of actual expenditure incurred on the use of a home for the purposes of a trade and

· fixed rate adjustments in place of fact-specific adjustments where trade premises (for example a hotel or restaurant) are also used as a home.

2 Paragraph 1 of the Explanatory Note indicates that the purpose of the amendments is to clarify how the provisions should be applied for partnerships. Paragraphs 5 and 7 of the same Note explain that the proposed new subsections 5A and 6A (introduced by Clause 24(7) and Clause 24(10) respectively) mean that a partnership cannot be selective in opting to use the fixed amounts. The fixed adjustments either apply to all or none of the relevant homes or business premises.

3 Clause 24(4) substitutes in the context of section 94H (only) the concept of "qualifying work" in place of "work done" and Clause 24(5) then introduces new subsection 4A which defines qualifying work. New subsection 4B indicates that "where work is undertaken by more than one individual in the home, then any hour spent wholly and exclusively for the purposes of the trade is counted only once".

4 The clause makes no amendment to the amounts of fixed rate adjustment which were introduced by FA2013 with effect from tax year 2013-14 and are intended to make tax "easier, quicker and simpler for small business" (Explanatory Note, para 9).

5 In this written evidence, the ATT comments on the practical implications of:

· the ‘all or none’ availability of fixed rate deductions for partnerships under new subsection 5A and

· the record keeping burden and relevance of the measurement of ‘work done’ as now proposed by subsection 4B.

B ATT comments

Clause 24(7)

1 In relation to new subsection 5A (introduced by Clause 24(7)), it is difficult to see the purpose of requiring all the partners within a partnership to use the same basis for claiming a deduction for use of home.

2 The fixed rate deductions are very modest (see table extract in section 94H(4) below). Their attraction is their relative simplicity – a user simply has to record the relevant home-working hours each month instead of the alternative of having to keep detailed records of actual household costs and apportion them between business and domestic use.

3 Any partner with significant business use of their home (typically but not necessarily a more senior partner) is likely to want to claim their actual (apportioned) expenditure. However, the requirement for all the partners in a partnership to claim on the same basis will mean that their other partners (some of whom may have much more modest levels of business use) will also have to keep the detailed records required rather than being able to use the fixed rate basis.

4 The insistence on the use of a uniform basis of claim by a partnership seems contrary to the objective of fixed deductions – to make tax "easier, quicker and simpler for small business." The provision as drafted will not achieve that objective within the context of partnerships. In the process, it also has the potential to increase the amount of deductions claimed compared with the situation which would apply if any partners with less significant business use of their home were able to claim the modest fixed rate deductions.

5 For the avoidance of doubt, we make the point that our comments above apply only to the proposed subsection 5A. The provision in proposed subsection 6A is more logical as the premises in question there might well be the home of more than a single partner.

Clause 24(5)

1 The measurement of ‘qualifying work’ for the purpose of quantifying the available fixed rate deduction under section 94H(4) (see table below) as provided by new subsection 4B (introduced by Clause 24(5)) impacts not only partnerships but any trader whose employees spend time working in in the trader’s home.

2 The current wording of section 94H(4) (see below) is silent on how any overlap of hours worked should be treated. That appeared to permit the counting of concurrent hours – which was reasonable given that such concurrent use had the potential to create greater costs of use of the trader’s home than use by a single individual.

3 By effectively requiring all relevant personnel to record the exact time when they were working in the home (in order to enable the exclusion of overlapping periods of use within each month) rather than simply record their individual hours worked in the home does not assist the objective of making tax "easier, quicker and simpler for small business".

4 Given the very modest level of fixed-rate deductions (see table below), the apparent requirement for any business wishing to make use of them to keep a record which enabled concurrent hours of work to be identified seems like a disproportionate burden.

5 The ATT considers that the introduction of the concurrent hours’ exclusion could further discourage the use of fixed-rate deductions.

Current wording of section 94H ( 4) , ITTOIA 2005 including monthly fixed rate deduction

" 94H( 4) The applicable amount for a month, or part of a month, is given by the following Table–

Number of hours worked Applicable amount

25 or more £10.00

51 or more £18.00

101 or more £26.00

where the "number of hours worked" in a month (or part of a month) is the number of hours spent wholly and exclusively on work done by the person, or any employee of the person, in the person's home wholly and exclusively for the purposes of the trade."

July 2016


Prepared 4th July 2016