Archive November 2020

Salary & Salary Hours

My client wants to know if they can calculate reference salary and salary hours. What do they have to keep in mind when making these calculations?

Further guidance on the extended Job Retention Scheme (JRS) was recently released covering your client’s query.

My client should keep in mind that for employees to be eligible to have their wages claimed for under the extended JRS, they must be on an employer’s PAYE payroll by 23:59 30 October 2020. This means that your client must have made a Real Time Information submission notifying payment for their employees to HMRC between 20 March 2020 and 30 October 2020.

My client will need to calculate their employees’ reference salary in order to determine what 80% of it is. When employees are on flexible furlough, it will also be necessary to calculate what their usual hours are so you can record both working and furloughed hours.

For employees on fixed pay, employed on or after 20 March 2020, the last pay period prior to 30 October 2020 provides the basis for calculation. For employees on variable pay or hours, employed after 20 March, the average of tax year 2020 to 2021 up to the start of the furlough provides the basis for calculation.

For employees that meet the eligibility criteria, and were previously furloughed, my client must use the same calculations for calculating reference pay and usual hours as the original JRS.
For an employee who meets the criteria of the extended scheme, but was not previously eligible for JRS, alternative calculations of reference pay and usual hours must be used. Here, 80% of wages (subject to the £2,500 cap) must be calculated for employees, as follows:

  • on a fixed salary – 80% of the wages payable in the last pay period ending on or before 30 October 2020
  • whose pay varies – 80% of the average payable between the start date of their employment or 6 April 2020 (whichever is later) and the day before their JRS extension furlough periods begins

My client should be aware that these dates are inclusive.

If an employee was not previously eligible for JRS and works fixed hours or their pay does not vary according to the number of hours they work, their usual hours will be the contracted hours worked in the last pay period ending on or before 30 October 2020.

If an employee was not previously eligible for JRS and works variable hours, their usual hours will be the average hours worked between:

  • the start date of the 2020 to 2021 tax year, (for example, 6 April 2020)
  • the day before their JRS extension furlough periods begins

Again, these dates are inclusive.

It is essential that my client familiarise themselves with this as much as possible and regularly check it for updates, including updates on the scheme as a whole.



Furnished Holiday Lets & COVID

I let a fully furnished caravan in the UK to holidaymakers and have done so for several years. However, various government lockdowns have led to reduced demand and cancellations since April 2020 for my furnished holiday accommodation.

Throughout the period, I have made the caravan available to the public as holiday accommodation and because the number of bookings has plummeted, I am concerned that my rental income may not qualify as trading income and I might lose out on the benefits afforded to me. Is there anything that I can do please?

Recap on the tax rules relating to furnished holiday accommodation

Provided certain conditions are met, the renting out of the UK furnished holiday accommodation is handled in a particularly beneficial way for tax purposes. We would refer to this as a Furnished Holiday Let or FHL:

Although it is a property income business it is treated as a trade. (S.127 ITA 2007). This special rule will also apply to an overseas property business which consists of, or so far as it includes, the commercial letting of furnished holiday accommodation (within the meaning of Chapter 6 of Part 3 of ITTOIA 2005) in one or more EEA states (S.126ZA ITA 2007)

Therefore, qualifying individual taxpayers are afforded the following benefits where they let a FHL:

  • Plant and machinery capital allowances are available for the purposes of the trade (S.13B; S.17-17A; S.249-250A CAA 2001);
  • For pension contributions, the furnished holiday letting income qualifies as “earned income” (S.20; S.322-323B ITTOIA 2005 and S.127 and S.127ZA ITA 2007);
  • There are Capital Gains Tax reliefs available such as rollover relief; business asset disposal relief (formerly known as entrepreneurs’ relief) (S.241 – S.241A TCGA 1992);
  • Full interest relief is available in respect of interest paid on qualifying loans to traders. (S.29 ITTOIA 2005)

HMRC take a very strict line on this and those individuals who are claiming furnished holiday lettings may be asked to provide business plans and accounts to support claims of a business venture and to demonstrate the following conditions are met:

Commercial letting condition

‘Commercial letting’ requires that the property be let:

  1. on a commercial basis; and
  2. with a view to the realisation of ‘profits’.

Profits’ here means the ‘commercial’, not the ‘tax adjusted’, profit.

Furnished Holiday Accommodation condition

Accommodation is ‘furnished holiday accommodation’ if:

  • the person entitled to the use of the accommodation is also, in connection with that use, entitled to the use of furniture (note that there is nothing in the legislation specifying a minimum amount of furniture); and
  • the accommodation is ‘qualifying holiday accommodation’.

Accommodation that is let during a tax year is ‘qualifying holiday accommodation’ if certain conditions regarding the availability, the letting and the pattern of occupation are met:

  1. ‘the availability condition’: the accommodation must be available for commercial letting to the public generally as holiday accommodation for at least 210 days during the ‘relevant period’;
  2. ‘the letting condition’: the accommodation must actually be commercially let as holiday accommodation for at least 105 days during the ‘relevant period’; and
  3. the ‘pattern of occupation condition’: during the ‘relevant period’, there must not be more than 155 days falling in ‘periods of longer-term occupation’.

In your situation, condition 2 would appear to fail because the property has not been commercial let for at least 105 during the tax year to 5th April 2021.

There have been no changes to the legislation concerning the statutory number of days (105) that must be met in relation to the pandemic.

However, HMRC have provided some informal guidance following concerns raised in the Community Forums on Gov.UK (see link below) They indicate there may be the opportunity to a make a “period of grace” election where the conditions in the previous tax year have been met but not met in the following tax year or the one after. HMRC state in their help-sheet HS253 (see link below) that for the period of grace election to be valid “…you must be able to show that you had a genuine intention to let the property in the year.” Details of how to make the election are also included in HS253

Link to the HMRC Community Forum:

It is also possible for an owner of more than FHL to make an Averaging election where one property meets the letting condition and at least one other property does not meet the qualifying conditions despite an intention to do so. It is worth noting that it is not necessary to include all of the qualifying properties in such an election.

Both elections must be made on or before the first anniversary of the normal self-assessment filing deadline for the tax year in question.


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