How do I treat expenses on properties within my limited company?

by Readers Question

13:31 PM, 27th June 2017
About A year ago

How do I treat expenses on properties within my limited company?

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How do I treat expenses on properties within my limited company?

I have had a limited company running for around 10 years for my main work, in the last few years I have purchased some properties for cash in order to rent out.

Last year I bought a flat and spent around £4k changing the kitchen, bathroom, some new electrics and generally giving it a paint up. On the HMRC site it gives examples of what is revenue expense and what is capital expense, are these different if under a limited company, ie. are all expenses allowed to be offset against my company earnings.

My accountant did say that he would not take any expenses into account, but he would offset them against any profit when the properties are sold, I don’t like this for a few reasons:

1 it seems to me he can’t be bothered to go through them

2 that expense incurred is devalued through inflation, if I sell in 20 years time then the £4k is not the same value as it was when the expense was incurred

So 2 questions, are the expenses different through a limited company and if so should my accountant take them into account this year, BTW I have submitted my yer end to him and told him I want them taken into account this year, got a feeling he will not but I’m looking for some ammo for when I meet him to discuss books.

Thanks

Gary



Comments

Mark Alexander

13:50 PM, 27th June 2017
About A year ago

Hi Gary

I suggest you ask your accountant why he feels these repairs and replacements cannot be offset against income
.

Romain Garcin

14:00 PM, 27th June 2017
About A year ago

Hi Gary,

Repair costs incurred when buying a new property in order to put it into a lettable condition are likely/usually capital in nature.

I am thinking that this may be your accountant's reasoning.

Puzzler

19:26 PM, 27th June 2017
About A year ago

You may not like it but you would be breaking the law to offset property rental expenses against your other company income. You really should keep them separate. This is what your accountant means. Did you buy the property from your company? If so was it a cash purchase? Depending on your other work, you might need to change the SIC code etc. etc.

Gary Ward

20:54 PM, 27th June 2017
About A year ago

I have around 30k income from the property rentals so plenty there to offset against, as for changing codes, i make many times that in my profession so don't need to change my main trade.

Gary Ward

20:59 PM, 27th June 2017
About A year ago

The main question was is expenses on a property looked upon differently if owned by a ltd company rather than an individual. If i buy a printer then a portion of that cost is accounted for as depreciation each year, im wondering why a kitchen is not the same. If not allowed to claim all the expense then some per year as depreciation. Dont think makes any difference but all bought with cash by the company which is a consultancy business btw.

Puzzler

22:00 PM, 27th June 2017
About A year ago

Yes you can offset related expenses against property income but not against your consultancy income. I don't think it makes any difference except for the new S24 rules. You may not need to change the main trade but maybe add the property business? I'm not sure what the implications are if you don't. I think your accountant is right and you would be better asking him/her for clarification. Residential property is a special category. If it's a repair or replacement then you can, otherwise you will have to wait until you sell. Kitchens would be a grey area and you would have to show that you are not improving the property just maintaining it. It's not business equipment. You may be glad of the CGT offset in future...

Mick Roberts

7:24 AM, 28th June 2017
About A year ago

I've had a few tax investigations on the same subject, & been looked at money spent on new houses bought before rented out.

And the taxmans own words was: Anything spent before actual rent received has to be classed as Capital refurb, till any rent is actually received.
So can't 'use' the receipts till sell the house in 20 years or so.

With Ltd Co., I'm not sure if the rules would change?

Here's another one for the discussion, what if we never sell the houses? We ain't ever getting our capital spend receipts deducted? Can we not be compensated for this Mr HMRC?

Ern Collison

10:47 AM, 29th June 2017
About A year ago

The rules in respect of capital vs revenue expenditure are the same for individuals and ltd cos.
In your case, the paint will most likely class as revenue expenditure and therefore will be deductible.
The other costs are a bit more open to interpretation. If the new kitchen is 'better' than the old one (whichever way anyone chooses to interprete that), then it will be capital and therefore not deductible. For instance, if it gives more storage space, or has an extractor which wasn't there in the old kitchen, that will be capital expenditure. If the new kitchen performs exactly the same as the old one, then you could argue it is revenue expenditure. Same goes for the bathroom and any other work done.
If the property was dilapidated, and not fit to be inhabited when you purchased it, then all expenditure would be capital.......... if you bought it at a reduced price for instance due to dilapidation.
If you purchased it at a normal price, and it was habitable, then the lick of paint would be revenue expenditure, the kitchen, bathroom etc would be revenue providing it does not provide any additional functionality over the replaced units.
Problem is HMRC inspectors themselves misinterpret this!!

Jon D

22:57 PM, 2nd July 2017
About A year ago

My accountant told me that the latest guideline is that anything below £250 can be 'expensed' against revenues.

Anything above this is plant & machinery with a 25% WDA (writing down allowance) per year. So 25% of the larger kitchen bill can be claimed in the 1st year, 25% of the net amount (original amount minus 25%) the next year and so on. Slow process but cuts the tax bill. Not sure what the latest %s are.

The extra items for kitchen & bathroom etc, less than £250, would be simply receipts against income, so don't bunch them with the main kitchen invoice. Look at them individually and ascertain whether they are an improvement or replacement of like for like. Latter can be 'expensed' immediately. Former can be sold for a fiver when replaced to claim full loss.

In fact, if the old kitchen was 'sold' in the future for a low price, as part of a 'part exchange' for a new kitchen then the loss can be written down that very tax year. So no waiting 20 years to sell the house. Same for smaller capital items.


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