What do you get when you cross the ‘Twelve Days of Christmas’ with ‘Elf on the Shelf’?
Twelve Days of Christmas Elf Confessions of course!
Here’s our 12 tax ‘confessions’ corrected to keep you on Santa’s, sorry HMRC’s, ‘good list’ this year.
ELF CONFESSIONS #1 – A polar bear ate my Tax Return, I have a reasonable excuse for late-filing!
Sorry Elf but this is likely to be an unsuccessful appeal against a late-filing penalty. Whilst an unpredictable event, HMRC will not deem it a genuine excuse and a serious illness or a failure in the HMRC computing system are more likely to be occasions that represent a reasonable excuse for late-filing.
ELF CONFESSIONS #2 – WHERE THERE’S A WILL… I don’t need a will – Mrs Elf will inherit everything anyway.
You might want to think again Elf. In the absence of a will your assets may not necessarily go where you would like them to (according to the rules of intestacy), and you may be exposed to higher Inheritance Taxes as a result. A will would be recommended even with a moderate-sized estate.
ELF CONFESSIONS #3 – WORKING FROM HOME – I can get tax relief from my employment income because I work from home.
Sorry Elf but you might not qualify now. Following a relaxation in these rules by HMRC for the 2020/21 and 2021/22 tax years as a result of Covid-19 enforced home-working, it is now unlikely a hybrid worker will qualify for this relief from April 2022 onwards. For a claim against employment income to continue, it is likely to be necessary for the employer to have no suitable facilities on their premises for you to be able to work.
ELF CONFESSIONS #4 – CARISTMAS RULES – I use my car for my business so I can claim all of my car costs as a business expense.
That’s not quite right Elf. A sole trader will broadly have the option to either claim business mileage or the proportion of the car costs that can reasonably be attributed to the trade. Mileage records would be recommended in order to demonstrate the level of deduction claimed for both options.
ELF CONFESSIONS #5 – SIDE HUSTLE OR HOBBY? – Income from my hobby is not taxable.
Within limits Elf. HMRC, in an uncharacteristically non-Scrooge like gesture, introduced the £1,000 trading allowance in 2017/18 to keep certain casual earnings from being charged to tax. If income from such a source exceeds £1,000, business records should be kept and it will likely be appropriate to register the self-employment with HMRC and a tax return completed each year.
ELF CONFESSIONS #6 – FUN IN THE SUN – I can get things for ‘free’ by getting the company to pay for them.
Don’t pack your speedos yet Elf! The post-Christmas trip to Barbados is unlikely to be business related and fall short of the ‘wholly & exclusively’ test. The costs of the holiday are likely to be taxable as earnings or a benefit-in-kind (depending on how payment was made).
ELF CONFESSIONS #7 – PURSE OUT FOR TRIVIAL GIFTING? – I can use the £50 trivial benefit exemption to reward staff performance.
Be careful with this one Elf. The giving of £50 gift vouchers to certain employees as a reward for good services will represent a taxable emolument of the employment. The (more indiscriminate) gifting of £50 vouchers to all employees at Christmas is likely to qualify as the provision of a trivial benefit (i.e. no tax charge on the recipient and a deduction available against profits for the business).
ELF CONFESSIONS #8 – HOME TRUTHS – As a tax resident in the North Pole, I have no exposure to UK tax.
Not necessarily the case Elf. Any UK-source income is likely to be taxable in the UK and, in the absence of a Double Tax Treaty in place between Antartic and the UK, we would recommend tax advice is sought to determine the correct tax position. Specific reporting requirements are in place in relation to the sale of UK property for non-residents.
ELF CONFESSIONS #9 – CREDIT WHERE IT’S DUE – Only scientific-related businesses can claim Research & Development (R&D) tax credits.
That’s not the case Elf. Lab coats are not necessarily required in order for a company to claim R&D tax credits. Finding a particularly innovate way to curb plastic usage in the manufacturing of toys in order to meet green targets may well facilitate a claim for this valuable relief.
ELF CONFESSIONS #10 – YOUR HOME ALONE? I can give my home to my children in order to avoid paying Inheritance Tax on it.
Potentially Elf, if you move out and no longer receive any benefit from it (whether by virtue of staying there or receipt of rental income). Otherwise it is likely to represent a ‘gift with reservation of benefit’ and continue to form part of your estate for Inheritance Tax purposes.
ELF CONFESSIONS #11 DRIVING HOME FOR CHRISTMAS I can treat the (company-owned) car, that I drive home from work in, as a ‘tax-free’ pool car.
Probably not Elf. To qualify as a pool car, the vehicle will generally have to be used by more than one employee and kept on the company premises at night whilst any non-business use (e.g. commuting to/from home) should be negligible. If a company-owned car is not a pool car, it is very likely a taxable benefit-in-kind.
ELF CONFESSIONS #12 RAMPING UP THE RETURNS Making Tax Digital (MTD) means I will no longer have to submit a tax return.
You’ll end up making more returns I’m afraid Elf. Making Tax Digital for Income Tax Self-Assessment (MTD for ITSA) was due to be introduced in April 2024 but has been delayed until 2026. For many sole traders and/or landlords, the annual return will still be required – in addition to the quarterly returns and the final declaration. An exemption from MTD reporting would need to be applied for from HMRC e.g. where it is reasonably impracticable for you to use digital tools owing to reasons of age or disability.
We hope you have enjoyed our bit of festive fun.
Wishing everyone a Merry Christmas and a happy, healthy, prosperous 2023.