Tag: capital allowance

Can HMO’s and Residential Properties claim Capital Allowances?

Capital Allowances are for commercial properties.

Why are Capital Allowances important on commercial property?

They can be worth a lot money, sometimes a third of the property value can be plant and machinery and they are often over looked and under claimed.

There are companies who say you can claim them for HMOs but that doesn’t fit with rules!

Yes you could but them on your tax return but that doesn’t mean you have a valid claim as HMRC have process now and check later approach.

Here are the rules…

Capital Allowances Act 2001

http://www.legislation.gov.uk/ukpga/2001/2/section/35

The person’s expenditure is not qualifying expenditure if it is incurred in providing plant or machinery for use in a dwelling-house.

General: Definitions: Dwelling house

CAA01/S531

There are several references to dwelling house in CAA2001. The term appears in Part 2 (plant and machinery allowances), Part 3 (industrial buildings allowances), Part 3A (business premises renovation allowances), Part 6 (research and development allowances) and Part 10 (assured tenancy allowances).

For Part 10 (ATA) only “dwelling house” is given the same meaning as in the Rent Act 1977 (CAA01/S531).

There is no definition of “dwelling house” for the other Parts and so it takes its ordinary meaning. A dwelling house is a building, or a part of a building; its distinctive characteristic is its ability to afford to those who use it the facilities required for day-to-day private domestic existence. In most cases there should be little difficulty in deciding whether or not particular premises comprise a dwelling house, but difficult cases may need to be decided on their particular facts. In such cases the question is essentially one of fact.

A person’s second or holiday home or accommodation used for holiday letting is a dwelling house. A block of flats is not a dwelling house although the individual flats within the block may be. A hospital, a prison, a nursing home or hotel (run as a trade and offering services, whether by the owner-occupier or by a tenant) are not dwelling houses.

A University hall of residence may be one of the most difficult types of premises to decide because there are so many variations in student accommodation. On the one hand, an educational establishment that provides on-site accommodation purely for its own students, where, for example, the kitchen and dining facilities are physically separate from the study-bedrooms and may not always be accessible to the students, is probably an institution, rather than a “dwelling-house”. But on the other hand, cluster flats or houses in multiple occupation, that provide the facilities necessary for day-to-day private domestic existence (such as bedrooms with en-suite facilities and a shared or communal kitchen/diner and sitting room) are dwelling-houses. Such a flat or house would be a dwelling-house if occupied by a family, a group of friends or key workers, so the fact that it may be occupied by students is, in a sense, incidental.

The common parts (for example the stairs and lifts) of a building which contains two or more dwelling houses will not, however, comprise a dwelling-house.

https://www.gov.uk/hmrc-internal-manuals/capital-allowances-manual/ca11520

steve@bicknells.net

Would a Partial Capital Allowance Claim reduce your tax bill?

Businessman get idea

It is not necessary to claim the maximum capital allowances available or even claim them at all, crazy as it might sound there are situations when not claiming capital allowances can reduce your tax bill!

Sole Trader Example

The personal tax allowance is currently £10,600 (2015/16)

Lets assume profits are £15,000 and Capital Allowances available are £5,000, so that would reduce taxable profits to £10,000 which would waste £600 of the personal tax allowance.

It would therefore be better to only claim £4,400 in capital allowances and claim the remaining £600 in the following year.

Company Example

Companies within a Group can only offset losses in corresponding tax periods, so if the the capital allowances increase the loss in one part of the group beyond the profits of the rest of the group then there would be no benefit to claiming them in that period.

Companies can claim capital allowances in any of the following 3 tax years.

There is an excellent example of this in the following blog http://taxnotes.co.uk/a-basic-introduction-to-capital-allowances/

steve@bicknells.net

Is my website a fixed asset?

WWW Website

HMRC use the Analogy of a shop window….

The cost of a web site is analogous to that of a shop window. The cost of constructing the window is capital; the cost of changing the display from time to time is revenue. (BIM35870)

UITF Abstract 29

Set out 4 key areas of cost:

  1. Planning – P&L
  2. Application and infrastructure development – Tangible Fixed Asset
  3. Design costs – P&L
  4. Content costs – P&L

HMRC also have some useful information on software in CA23410

CAA01/S71

Computer software qualifies for PMAs if it is not already plant.

Computer software is not defined in the capital allowance legislation. You should treat computer programs of any type and data of any kind as computer software. Computer programs range from operating systems like Windows to games like Solitaire. There may be no physical asset because software is sometimes transferred by electronic means, for example it may be downloaded over the Internet. Software acquired that way is also plant.

A person may acquire a right to use or otherwise deal with computer software. If so, the right and the software to which it relates are plant. Treat the person as owning the plant while the person is entitled to the right.

 

Capital Allowances and the Annual Investment Allowance can be claimed against Plant including software.

steve@bicknells.net

5 reasons why your business should give you an IPad

Tablet

What do you use your IPad for? if you’re like me its for checking e mails and doing research related to business

So if its work related here are some great reasons why your business should buy it for you:

  1. Increased Productivity – If an IPad enables you and your team to work more effectively then why not start using them – Office 365 and Google Docs allow you to access your E Mails and Information easily any where any time
  2. Morale Boost – Getting a new IPad should improve morale
  3. Business Only – VAT – IPad’s and Tablets of all types are popular business tools and they are basically no different to a computer or laptop, if you can show that the IPad is necessary for work and there is only insignificant minimal private use then your business can reclaim the VAT, your business may set up a written policy to say that you can only use the the IPad for personal purposes in exceptional circumstances.
  4. Some Private Use –  in this case the business could still reclaim all the VAT if it charged you a hire charge for your private use of the IPad
  5. Capital Allowances – If its a business asset your business can claim capital allowances and reduce your tax bill

steve@bicknells.net

Are you planning to buy Assets? Annual Investment Allowance increase starts in January

Investment Capital Allowance

In the Autumn statement (Finance Bill 2013) it was announced that for 2 years from 1st January 2013 the Annual Investment Allowance will be increased from £25,000 to £250,000 (an increase of 10 times!).

This is fantastic news if you are planning asset purchases because it will reduce your tax bill.

Some examples of AIA qualifying expenditure

‘Plant or machinery’ actually covers almost every sort of asset a person may buy for the purposes of his/her business. Really the only business assets not covered are land, buildings and cars (which are excluded by one of the ‘general exclusions’). Typical examples of plant or machinery include:

    • computers and all kinds of office furniture and equipment
    • vans, lorries, trucks, cranes and diggers
    • ‘integral features’ of a building or structure, see CA22320
    • other building fixtures, such as shop fittings, kitchen and bathroom fittings
    • all kinds of business machines, such as printing presses, lathes and tooling machines
    • tractors, combine harvesters and other agricultural machinery
    • gaming machines, amusement park rides
    • computerised /computer aided machinery, including robotic machines
    • wind turbines and fibre optic cabling.

Transitional Calculation

A company with a financial year chargeable period from 1 April 2012 to 31 March 2013 would calculate its maximum AIA entitlement based on:
(a) the proportion of a year from 1 April 2012 to 31 December 2012, that is, 9/12 x £25,000 = £18,750; and,
(b) the proportion of a year from 1 January 2013 to 31 March 2013, that is, 3/12 x £250,000 = £62,500.
The company’s maximum AIA for this transitional chargeable period would therefore be the total of (a) + (b) = £18,750 + £62,500 = £81,250, although in relation to (a) (the part period falling before 1 January 2013, no more than a maximum of £25,000 of the company’s actual expenditure in that particular part period would be covered by its transitional AIA entitlement (the maximum claimable before the increase to £250,000).

http://www.hmrc.gov.uk/tiin/2012/tiin1278.pdf

steve@bicknells.net

The hidden capital allowances in your building

FA2008 introduced a new classification of integral features of a building or structure, expenditure on the provision or replacement of which qualifies for WDAs at the 10% special rate. The new classification applies to qualifying expenditure incurred on or after 1 April 2008 (CT) or 6 April 2008 (IT).

http://www.hmrc.gov.uk/manuals/camanual/CA22300.htm

The new rules on integral features apply where a person carrying on a qualifying activity incurs expenditure on the provision or replacement of an integral feature for the purposes of that qualifying activity. Each of the following is an integral feature of a building or structure –

  1. an electrical system (including a lighting system),
  2. a cold water system,
  3. a space or water heating system, a powered system of ventilation, air cooling or air purification, and any floor or ceiling comprised in such a system,
  4. a lift, an escalator or a moving walkway,
  5. external solar shading

Only assets that are on the list are integral features for PMA purposes; if an asset is not one of those included in the list, the integral features rules are not in point.

However, Plant and Machinery includes….

other building fixtures, such as shop fittings, kitchen and bathroom fittings

Many businesses have never claimed capital allowances for these items and I found this article by Steve Bone http://www.curtisplumstone.com/wp-content/uploads/2011/06/Election-Agreements-Steven-Bone.pdf

It explains how elections can be made to claim the allowances using S198 of the Capital Allowances Act 2001.

HMRC have further details on this link http://www.hmrc.gov.uk/manuals/camanual/ca26850.htm

The alternative is to agree a S562 ‘Just and Reasonable Apportionment’ of the sale price.

Elections need to be made within 2 years.

There are calculators on the internet to help you assess the potential value of your claim

http://www.portaltaxclaims.com/

http://www.cataxsolutions.com/calculator.html

steve@bicknells.net

The tax advantages of company vans

What is a company van?

The Inland Revenue define this as a vehicle provided by an employer, built primarily to carry goods or other loads, and with a ‘design weight’ of up to 3,500 kilograms. This definition allowed drivers of pickups with car-like levels of luxury to avoid the much heftier levels of company car tax. Dual purpose vehicles have more than one row of seats but must be able to carry a 1 tonne payload to fall within van tax rules.Beware of specifying too many options such as a heavy hardtop which could take the payload below 1000kg.

Motorhomes and minibuses are not designed to carry goods, so will be taxed as company cars, not vans.

http://www.comcar.co.uk/newcar/companycar/budget/vantax.cfm

Benefit In Kind Tax

2011/12 Van benefit is a flat rate of £3000

2011/12 Van fuel benefit is a flat rate of £550

This is normally much cheaper than the benefit in kind on cars, try these calculators and compare the difference in tax.

Car Tax Calculator http://cccfcalculator.hmrc.gov.uk/CCF0.aspx

Van Tax Calculator http://www.vantax.co.uk/newcar/companycar/vancalc/g1select.cfm?clk=3

If your private use is insignificant then there is no benefit in kind.

‘Insignificant’ other private use means that the employee’s private use of the van in addition to ordinary commuting is very much an exception to normal usage and only lasts for short periods on an occasional and irregular basis. For example:

  • making a slight detour to buy a newspaper on the way to work counts as insignificant private use
  • an employee using a van to do their weekly shopping counts as more than insignificant private use – see the next section for the rules that apply in this case

http://www.hmrc.gov.uk/paye/exb/a-z/v/vans.htm#1

Capital Allowances and Annual Investment Allowance (AIA)

You can claim capital allowances on Vans as Plant & Machinery and they aren’t subject to the same restrictions as Cars, so if you are planning to buy a van now would be a good time as the Capital Allowances are higher before April 2012.

From April 2012 the rates of capital allowances will be reduced from (a) 20% to 18% and from on the Main Rate Pool (b) 10% to 8% for  ‘special rate’ expenditure respectively. At the same time the maximum amount of the Annual Investment Allowances (AIA) will be reduced to £25,000 a year (currently £100,000). So you might want to consider buying assets prior to April 2012 to take advantage of the current rates.

steve@bicknells.net

Tax Year End is coming – are you ready?

Not long to go now, the 5th April 2012 will be here before you know it.

So what should you do to makesure you save as much tax as possible?

Here are my top tips:

Companies & Businesses

From April 2012 the rates of capital allowances will be reduced from (a) 20% to 18% and from on the Main Rate Pool (b) 10% to 8% for  ‘special rate’ expenditure respectively. At the same time the maximum amount of the Annual Investment Allowances (AIA) will be reduced to £25,000 a year (currently £100,000). So you might want to consider buying assets prior to April 2012 to take advantage of the current rates.

Individuals – use your tax allowances

ISA’s – the current limit is £10,680 of which £5,340 can be in a cash ISA

Pensions – tax relief on pension contributions upto £50,000

Tax Check – check to see if you have paid too much tax and claim a refund if you have http://stevejbicknell.com/2012/01/21/is-your-tax-code-right/

Tax rates and Thresholds for 2012/13

HM Treasury have summaries these for you http://cdn.hm-treasury.gov.uk/as2011_rates_and_thresholds_201213.pdf

Do you have any ideas to share?

steve@bicknells.net

Capital Investment Appraisal, Tax and Depreciation – The Basics

How can you decide whether to buy a fixed asset or to rent it? How do you evaluate and compare capital expenditure requests?

There are 4 key techniques used:

1. Pay Back Period – how many years does it take to get back your initial investment in profits – for normal investments anything less than 3 years is considered good

2. Average Rate of Return (ARR) – this method of appraisal takes the average of the profits made over say a 3 year period (or the life of an asset) and shows the result as a % of the initial investment

3. Net Present Value/Discounted Cash Flow – this method of appraisal takes into account the time value of returns, its often considered the best and most precise way to assess returns, to calculate the Net Present Value you create a cash flow table year 0, shows the investment as a cost, then the net profits are shown in the subsequent years and a factor is applied to remove the effect of inflation, the higher the NPV the better the investment

4. Internal Rate of Return – this is also described as the effective interest rate, to calculate this we increase the Discount Rate in the DCF (3 above) until the NPV equals zero and that produces the return rate

Many businesses will seek to match the funding of the asset to its useful economic life through either a loan or lease, as the life of the asset will normally exceed the pay back period, this should lead to increased profits compared to renting the asset.

Assets are depreciated in the business accounts

Depreciation means the cost of the asset is spread, so it is written off against the profits of several years rather than just the year of purchase. Depreciation is not allowable for tax. Instead you may be able to claim the cost of some assets against taxable income as capital allowances.

The most common methods of Depreciation are Straight Line (depreciation is the same amount in each year) and Reducing Balance (the amount of depreciation decreases each year and is a percentage of the net book balance).

From April 2012 the rates of capital allowances will be reduced from (a) 20% to 18% and from on the Main Rate Pool (b) 10% to 8% for  ‘special rate’ expenditure respectively. At the same time the maximum amount of the Annual Investment Allowances (AIA) will be reduced to £25,000 a year (currently £100,000). So you might want to consider buying assets prior to April 2012 to take advantage of the current rates.

Click to access bn04.pdf

There will be a timing difference between Depreciation and Capital Allowances and the Tax on the difference in rates is calculated and shown in the accounts as a Provision for Deferred Tax.

steve@bicknells.net

Self Employed Tax Allowances

Basically when you are self employed you spend money on 3 types of expense:

1. Capital Expenditure – Equipment & Vehicles

2. Business Expenditure – stock, wages, premises

3. Private Expenditure – day to day living expenses – mostly not allowed but some types of cost may still count as business expenses

In general its types 1 and 3 where sole traders and partnerships miss out on tax allowances.

For example, you could claim capital allowances on your car,

Example: If you are self-employed, you pay Income Tax and your accounts are drawn up for the year to 5 April 2011 and you spent £20,000 on a car that you use 100 per cent for your business that has CO2 emissions of 165g/km, the calculation is as follows:

Cost of car = £20,000
Writing-down allowance deducted (£20,000 x 10 per cent) = £2,000
Value to carry forward = £18,000
Capital allowance you can claim = £2,000

If you use your car partly for private and partly for business you simply disallow a % for private use.

On other assets there is an Annual Investment Allowance which is currently £100,000 per year but will drop to £25000 in April 2012.

For most business that will cover all their capital expenditure, but there are further allowances available too.

With regard to private expenditure, there are tax reliefs available for working from home

http://www.hmrc.gov.uk/incometax/relief-household.htm

If you have to spend money on tools or specialist clothing for your job you may be entitled to either:

  • tax relief for the actual amounts you spend
  • a ‘flat rate deduction’

http://www.hmrc.gov.uk/manuals/eimanual/eim32712.htm

steve@bicknells.net