The assets must still exist in the business when it begins trading in order to claim.
p.s. amended due to chunky finger problems. I meant 3 years, not 4.... Sometimes I really think that I need a five year olds trainer keyboard, lol
-- Edited by Shamus on Monday 21st of January 2013 09:13:32 PM
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Shaun
Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
hi there - if you have receipts pre declaring self employed can these be used as business expenses - i.e. customer purchases a beauty kit in feb - declares self employed in april can she use that in her tax return from april onwards? many thanks
the assets (and where applicable services) are brought into the business as if purchased on the first day of trading.
kind regards,
Shaun.
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Shaun
Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
hahaha thank you so much! she has an other questions also - she has an outbuilding - used as a home salon and kids play room etc - her hubby is building it for her - its about 5/10 metres away from property - my questions are - can she claim the building of the structure, fixtures fittings as expenses - i was thinking no for the actual building but unsure about electric, plastering work? if i she can will she proportion it out as used as a kids room too? not sure if you know about if she will be applicable for council rates and can she claim these as an expense? Also electricity she will be charged for outbuilding she runs off the house - how would she apportion that out is the outbuilding classed as a room and bill split accordingly?? so sorry for the mass of questions!!
Shaun, I'm not sure were you got your information, but expenses incurred in the 7 years prior to the commencement of trade are treated as incurred in the first day of trading. Such expenses will be allowable and deducted from trading expense in the first accounting period, provided they would have been allowed under normal rules
Oh God... Got a fried brains as well as worn out fingers.
been a very long time since it was 3 years.
Maybe my fingers were trying to tell me something when they typed in 4 (which would be applicable for VAT purposes).
Thanks Frauke, yes, you are right, I should have said 7 years,
Maybe time for me to give up for the evening,
kind regards,
Shaun.
__________________
Shaun
Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
before going too far down that path, even though the salon is seperate from the house does she realise that devoting part of premises to being business related will mean that a portion of the eventual sale price of the house would no longer be exempt from taxation.
The business would be subject to business rates on the salon but in some ways that isn't a bad thing as it lends legitmacy to the construction.
Business rates are an allowable expense of the business and any electricity used in the salon would be an expense of the business as well.
For clients who run a business out of their house then the governments new simplification rules coming in this year are losing the floor space criteria and adopting a flat £4 per week for use of the house... However, your client is looking at seperate premises to the main residence so to my mind the old proportion of floor space rule would be a good starting point... Except that a salon is likely to be quite electricity intensive.
Short of having a seperate meter fitted (or a supply monitor which is about £40... And could be an expense of the business) the best approach would be to take the electricity bills from before the salon opens and then the electricty bills post opening and the charge to the business should be the difference.
Standing charges would be the same regardless as to whether there is a salon there or not so these would not be apportioned to the business.
The general rule to think about when deciding whether an expense shiuld be allowable is whether or not it has been incurred wholly, necessarily and exclusively for the purpose of business.
kind regards,
Shaun.
__________________
Shaun
Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
Cheers Frauke but I've decided that I'm now beaten for the evening so early one for me.
Hope that you have a good one and that all of your self assessments are falling into place nicely,
kindest regards,
Shaun.
__________________
Shaun
Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
thank you so much for the response! I had just been reading that garage conversions etc were not an allowable expense due to the capital gains etc, but i was not sure as they would be building the outbuilding for the specifics of a home salon (and minor use as a play room but on discussions I think she may have picked up the fact of using a portion of your business premises as personal would make them not liable for rates?) I was under the impression that if she built it wholly for business use the building, plaster, plumbing etc would be an allowable expense - if she used any for personal it would not be - if she claimed as an expense she would be liable for capital gains if she sold the house and would have to pay rates etc? Im presuming all fixtures and fittings for the outbuilding would be sufficient as an expense as it lends to the nature of her business - i.e. light dimmers for relaxation etc?
If someopne converts a garage into an office, there is only a capital gains implication if they sell the property with an office. If they convert the office back into a garage and then sell the property with a garage, there is no capital gains implication.
One apsect that has not been covered is that the materials used in constructing "outbuilding" are going to be a capital expense, and not claimable under normal revenue expenses.
My understanding is that it is also a structure, and may not be eligible for any capital reliefs either (even the dismantling and returning the garden back to its original state)
Hi there - i know i have totally changed the original thread haha! I have contacted HMRC and they have told me that the outbuilding and any work to create it i.e. plastering etc are not an allowable expense as it is part of the residence - i asked if converting a garage would be the same they stated that no business expense could be applied to the conversion i.e. electric work, making it water tight etc. im confused as she would be using the outbuilding wholly for business use - why do they not see that as a cost incurred by the business? i realise the capital gains factor if selling but she never plans to sell - my apologies if i am missing something!! ive not worked with that aspect before!
Bill, you are correct about the building being a capital asset, but the question is what is classed as part of the building and what is not. When a client converts thier garages into offices (etc) the conversion costs can be claimed as Capital allowances (not the structural costs) , and when they are converted back, the costs are claimed as trading expenses. A lot depends on if the nature of the expenditure and the time scale of the life of the item, can be considered as part of the structure or not. e.g. plastering to make the property sound is a capital expenditure, whereas plastering for cosmetic purposes or a temporary nature could be considered a trading expense. If plastering is not an essential part of the structure, it cannot be considered structural.
I won't always worry about what HMRC say as long as you do your homework to back it up! I recently had HMRC try to disallow a self-employed "susbsistence claim" on the grounds that they were not all linked to a overnight stay in a hotel. Eventually it was allowed as I did my homework in respect of this particular client as their reason why it was allowable had already been agreed prior to the cliam being made so that the subsistence was allowable, which is why I allowed the claim in the first place. It is also worth keeping copies of the infomation/case details as not only is it useful for CPD purposes, but often things change at a later date, and it is important that something that was standard pratice at the time and stop being so, does not get applied to a time when it was current practice.
I realised the even getting things in writing from HMRC did not always cover you. When I first became an accountant, I had a client who had written to HMRC to ask if he should be VAT registered, because he thought that perhaps he should. They wrote back and confirmed that he should not be VAT registered. Sometime later he discovered he should have been VAT registered after all and was fined for not registering on time. He appealled the fine on the grounds that he had been advised in writing that he did not have to register for VAT. His appeal failed because he was told "he should have insisted on becoming VAT registered when he beleived he should, rather than rely on the HMRC to tell him he should or should not be registered".
-- Edited by YLB-HO on Thursday 24th of January 2013 09:15:20 PM
The way I see their reasoning behind it is that by constructing an outbuilding, a long term asset is being created, which makes any expenditure Capital expenditure, not revenue expenses.
As buildings do not qualify for tax reliefs, no allowances can be claimed.
Thank you so much for your reply! I think im confusing myself too much and perhaps involving myself too much with the client also - at what point do i stop becoming a book keeper and start becoming an unpaid accountant haha! Maybe a thought for another thread! half my problem is i like to be perfect at everything and know everything! It doesnt help that HMRC are rather confusing!! I cannot believe that about your client with the VAt situation!!
Whilst the fine was unfair HMRC could legitimately argue their case that it should be imposed as the taxpayer had not registered when they should have per the regulations.
Conversely the taxpayer also has the right to request recompense for the advice given that they acted upon in good faith in order to put them back in the position that they would have been in had the advice given not been acted upon.
I would advise the taxpayer to contact their Member of Parliament about this as it is unacceptable behavior by HMRC to disregard written evidence of their own bad advice.
Shaun.
__________________
Shaun
Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
The fine was 20 year ago, and the client did go through the appeals proceedure at the time. But then HMRC state that ALL company directors should complete a tax return, when in Tax law it does not say that (which I presume you would already know). I see a lot of e-mails (within my WTG group) from large firms of accountants who complain about the incorrect advice given to clients when they contact HMRC. Clients contact HMRC because they don't want to pay additional fees to thier accountants, except the advice they get from HMRC is often wrong.
torracj, you shouldn't be an unpaid accountant. If you are doing accountancy type work, you should charge accoutancy fees for it. Not charging a fee, when it goes wrong, does not stop the client from blaming you and expecting you to recompense them.
-- Edited by YLB-HO on Saturday 26th of January 2013 11:01:06 AM
I agree that there is a lot of interpretation required on some items. Even HMRC admit this. If you have a strong enough aguement for a case then there is a good chance of it being accepted.
The reason I thought this would be all capital expense in this instance, is that it is a seperate structure being constructed, not a garage conversion. Of course there may be fixtures and fitting installed (again a matter of interpretation for some items) but on the whole mainly a building.
Nice reading list guys. No, not Dr Seuss; The Gulag Archipelago and The Road To Serfdom. Very complimentary and quite apt with a current thread.
Since 2009 we do not even have the right of appeal to local lay commissioners, nor automatic right to appeal to the High Court on a point of tax law. It's a little early to say whether the Tax Tribunals have adequately replaced the old General Commissioners but there seem to be financial constraints and mixed results. Comments by the Tribunal Judges on pages 7 and 16 of this report might be of interest.
Looks like ESCA19 is already for the chop, and the Adjudicators Office is overwhelmed, so it looks like there will be few ways to seek redress when HMRC fails, or in Frauke's case, actively deceives a taxpayer.
