I'm in the process of completing an end of year and was hoping someone here could help with a few things. It's the first year of trading for a sole trader, who spent money constructing an outbuilding for the sole purpose of working from it. Due to the location of the building it would be worthless were the business to close (it is on private land and couldn't be rented to another trader or sold on).
How would I account for this on the balance sheet, and with regards to depreciation? Would it be classed as an asset at the amount it cost to build?
My second query is in regards to training. The sole trader invested their own money to undertake training in a new skill to enable them to conduct business. Am I right in saying this can't be classed as an expense but is instead capital investment? Would this also be shown as an asset?
On the building front you don't say whether it is attached to the persons house (i.e. they thought it would be a good way to get a subsidised extrension... Like we've not all seen that one before!).
The building is capital expenditure but no capital allowances are available against it.
Yes it can be depreciated but depreciation is an accounting, not tax concept (you add depreciation back in the tax calculation) You would depreciate from cost over the assets useful economic life.
Training in something new is to my mind not deductible against the business as the business was set up after the skills were acquired. Any post establishment of the business training relevant to the business (it must be receiving income for the service offered) would be an allowable expense.
Training would never be classified as an asset, its a consumable.
Welcome to the forum Mark. Would you like to introduce yourself? (experience, professional body, etc. so that we know what level to pitch answers).
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.
p.s. forgot to add, remember that the contents of the building are seperate to the building itself and may either have captal allowances (often in the 8% pool) or in many cases be expensed.
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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.
Thanks for the help, I appreciate it. In terms of experience I qualified with AAT around 4 years ago but unfortunately wasn't in a position to gain much practical experience at the time. I offered to complete this year end to gain a bit of experience and get some practice in really!
It's the first time I've done a 'real' year end from beginning to end, it's been largely straightforward apart from the couple of issues mentioned.
The building isn't attached to the house but it is in the garden, wouldn't be used for much other than a shed or workshop were the business to cease trading.
So to clarify, the expenditure on the building and the training can't be deducted in terms of the net profit for the SA return, but would be shown as Capital on the balance sheet, with the building at cost (less depreciation) shown as an asset, is that correct?
Thanks again for your help!
my arguement is that the training cannot be shown at all due to it being incurred to gain the knowkledge to start the business. Very similar to bookkeepers and accountants not being able to charge their training costs to their business when they set it up but once it is set up further training and CPD costs may be expensed (quite different to people working for someone else whilst they train).
The building could be included in the balance sheet and whilst one could depreciate the building (assuming that its value is being consumed) over its useful economic life the depreciation is added back in the tax calculation and there are no capital allowances or AIA to replace such with.
Remember that the building contents such as electricity instalation, water supply, heating system, etc. is quite seperate to the building itself.
Basically, there is no tax advantage to having built it.
Kind regards,
Shaun.
p.s. thanks for the additional info. Sure that you know this already but I'm obligated to emphasise to people that they must be registered for MLR in order to offer services (paid or unpaid). Will be availble either if you are an MAAT MIP through AAT or via HMRC if you are not a MIP yet. Sure that you've got that covered but just wanted to mention it in case you hadn't.
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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.
my arguement is that the training cannot be shown at all due to it being incurred to gain the knowkledge to start the business. Very similar to bookkeepers and accountants not being able to charge their training costs to their business when they set it up but once it is set up further training and CPD costs may be expensed (quite different to people working for someone else whilst they train).
The building could be included in the balance sheet and whilst one could depreciate the building (assuming that its value is being consumed) over its useful economic life the depreciation is added back in the tax calculation and there are no capital allowances or AIA to replace such with.
Remember that the building contents such as electricity instalation, water supply, heating system, etc. is quite seperate to the building itself.
Basically, there is no tax advantage to having built it.
Kind regards,
Shaun.
p.s. thanks for the additional info. Sure that you know this already but I'm obligated to emphasise to people that they must be registered for MLR in order to offer services (paid or unpaid). Will be availble either if you are an MAAT MIP through AAT or via HMRC if you are not a MIP yet. Sure that you've got that covered but just wanted to mention it in case you hadn't.
We seen these questions a few times on here about both aspects raised as a lot of self employed people think they can shove anything through. More do seem to be caught by the shed that is an office and vice versa one thinking it will reduce their tax liability, but never seem to get the advice before they build one!
Welcome to the forum Mark.
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Joanne
Winner of Bookkeeper of the Year 2015, 2016 & 2017
Thoughts are my own/not to be regarded as official advice,which should be sought from a suitably qualified Accountant.
You should check out answers with reference to the legal position
Every time I'm approached with "We've built an office in the garden" not "We're thinking of building an office in the garden what would you advise is the best approach".
Closing the stable doors after the horse has bolted comes to mind!
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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.
Isnt it the case with about 95% of what clients do?! Even in the 5% of times they ask us they still quite often just bimble on ahead and try asking the question again as if we are going to give a different answer!
Part of me would like one of these ultra sumptuous garden sheds just so I would feel like I was going to work as opposed to lurking in the back bedroom! Better still a tree house with a retractable ladder and moat round it (and no phone!)
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Joanne
Winner of Bookkeeper of the Year 2015, 2016 & 2017
Thoughts are my own/not to be regarded as official advice,which should be sought from a suitably qualified Accountant.
You should check out answers with reference to the legal position
Don't forget that the ladder would not be part of the structure so could either be expensed if immaterial or treated as a normal asset with AIA available (and depreciate over four years in the books)... Yes, I know that its attached to the tree house but it's seperable unlike say running electricity to the tree house which would be in the 8% capital allowances bucket.
Interesting conundrum about the moat in that if it can be shown to be seperable from the treehouse could the groundwork be expensed rather than capitalised as part of the asset... Certainly the rippy fish that you fill it full of would be expensed consumables.
Lol, just been teaching my youngest how to make 2+2 = 3 (using amortisation) and got a "do it again, do it again". Think he's trying to memorise it to impress the girls when he starts his Accountancy A level in September.
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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.
Don't forget that the ladder would not be part of the structure so could either be expensed if immaterial or treated as a normal asset with AIA available (and depreciate over four years in the books)... Yes, I know that its attached to the tree house but it's seperable unlike say running electricity to the tree house which would be in the 8% capital allowances bucket. I was going to get a rope ladder but think I might just stretch to a wooden one now!
Interesting conundrum about the moat in that if it can be shown to be seperable (very easily done of course!) from the treehouse could the groundwork be expensed rather than capitalised as part of the asset... Certainly the rippy fish (on order!) that you fill it full of would be expensed consumables. Not the fluffy bunnies keeping the grass short though!
Lol, just been teaching my youngest how to make 2+2 = 3 (using amortisation) and got a "do it again, do it again". Think he's trying to memorise it to impress the girls when he starts his Accountancy A level in September. Teaching him all of your tricks with the Layyyydies then Shaun?! Chip off the old block Im sure.
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Joanne
Winner of Bookkeeper of the Year 2015, 2016 & 2017
Thoughts are my own/not to be regarded as official advice,which should be sought from a suitably qualified Accountant.
You should check out answers with reference to the legal position
Don't forget that the ladder would not be part of the structure so could either be expensed if immaterial or treated as a normal asset with AIA available (and depreciate over four years in the books)... Yes, I know that its attached to the tree house but it's seperable unlike say running electricity to the tree house which would be in the 8% capital allowances bucket. I was going to get a rope ladder but think I might just stretch to a wooden one now!
Interesting conundrum about the moat in that if it can be shown to be seperable (very easily done of course!) from the treehouse could the groundwork be expensed rather than capitalised as part of the asset... Certainly the rippy fish (on order!) that you fill it full of would be expensed consumables. Not the fluffy bunnies keeping the grass short though!
Lol, just been teaching my youngest how to make 2+2 = 3 (using amortisation) and got a "do it again, do it again". Think he's trying to memorise it to impress the girls when he starts his Accountancy A level in September. Teaching him all of your tricks with the Layyyydies then Shaun?! Chip off the old block Im sure.
Ahh, but the bunnies would be keeping the grass short for personal enjyment so would not pass the wholly, necessarily and exclusively test.
Just had a very cruel thought about the bunnies being consumables, lol.
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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.
