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Author Topic: When can / can't you claim capital allowances?  (Read 10203 times)

Womble

  • Joined Mar 2009
  • Stirlingshire, Central Scotland
When can / can't you claim capital allowances?
« on: July 17, 2016, 08:28:41 pm »
Hi folks,

I've just sent my first year's smallholding sole trader accounts off for my accountant to review, but they've replied to say that I can't claim capital allowances for "improvements to land or preparation of land for any sort of structure" (we spent rather a lot improving field drainage last year). Likewise, they don't want me to claim for the costs of repairing our hay shed, because it's a fixed thing, and cannot be moved or sold.

I thought this was fine initially, as it could be taken as a revenue cost (i.e. in the same year, rather than depreciated over several years), but it seems now that I can't claim any of these costs at all?

I'm now mightily confused. If a 'proper' farmer improves their field drainage or repairs their hayshed, how on earth do they pay for it if not out of farm money?  ???

Can anybody ( [member=26320]doganjo[/member]  ?) explain this for me in plain English please?   :)

Thanks!  :thumbsup:
"All fungi are edible. Some fungi are only edible once." -Terry Pratchett

Black Sheep

  • Joined Sep 2015
  • Briercliffe
    • Monk Hall Farm
Re: When can / can't you claim capital allowances?
« Reply #1 on: July 17, 2016, 09:33:49 pm »
I think there are different rules for what can be claimed as expenses by self-employed versus limited companies.

Good luck trying to fathom out the logic of tax rules!

hughesy

  • Joined Feb 2010
  • Anglesey
Re: When can / can't you claim capital allowances?
« Reply #2 on: July 17, 2016, 09:41:49 pm »
Get another accountant. Repairs and maintainance are legitimate business expenses, sole trader or otherwise.

doganjo

  • Joined Aug 2012
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Re: When can / can't you claim capital allowances?
« Reply #3 on: July 17, 2016, 11:01:05 pm »
Have you repaired or improved from what was there originally?  If repair it's tax allowable, if it is an improvement you can't
The general position is that the cost of a repair is normally allowable expenditure, but replacing the asset or making a significant improvement to the asset as a whole (the 'entirety') will be capital expenditure and not allowable as a deduction.

More details:
Repair means the restoration of an asset by replacing subsidiary parts of the whole asset. An example is the cost of replacing roof tiles blown off by a storm. There won’t be a repair if a significant improvement of the asset beyond its original condition results - that will be capital expenditure. For instance, there will be a capital improvement if the taxpayer takes off the roof and builds on another storey.

A repair is normally a revenue expense that can be deducted in computing rental business profits.

These are normally deductible
• exterior and interior painting and decorating,
• stone cleaning,
• damp and rot treatment,
• mending broken windows, doors, furniture and machines such as cookers or lifts,
• re-pointing,
• replacing roof slates, flashing and gutters.

The cost of land and any buildings on it is capital expenditure. So is the cost of any new buildings erected and any improvements.
capital expenses NOT deductible include:
• expenditure which adds to or improves the land or property; for example, converting a disused barn to a holiday home,
• the cost of refurbishing or repairing a property bought in a derelict or run-down state,
• expenditure on demolishing a derelict manufacturing building to clear space for a new office building;
.  the cost of a new building,
• the cost of building a car park next to a property that is let,
• expenditure on a new access road to a property

Head sore yet?  :eyelashes:  You did ask!  :innocent:



Always have been, always will be, a WYSIWYG - black is black, white is white - no grey in my life! But I'm mellowing in my old age

Womble

  • Joined Mar 2009
  • Stirlingshire, Central Scotland
Re: When can / can't you claim capital allowances?
« Reply #4 on: July 17, 2016, 11:11:21 pm »
Aha, that makes a bit more sense.


Re-reading the Email, I think they've misunderstood the hayshed repair, thinking it was an improvement (it wasn't, so that should be allowable after all).


I think they're saying that the drainage works aren't allowable because it is "improving the land or property", from your link below Doganjo. On your list, it's a bit like the 'building a new car park next to a property". However, I think there's a decent argument here to say that we were actually repairing the clogged field drains, by digging them up where they were blocked, and replacing those sections. This is of course absolutely true, but I may have inadvertently muddied the waters by recording it as 'drainage improvements'.

Watch this space!
"All fungi are edible. Some fungi are only edible once." -Terry Pratchett

doganjo

  • Joined Aug 2012
  • Clackmannanshire
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Re: When can / can't you claim capital allowances?
« Reply #5 on: July 18, 2016, 12:08:48 pm »
Addendum - if you are VAT registered you can claim back the VAT on all repairs and some improvements, depending on the nature of these - VAT people are now very helpful. Ask them if unsure but be sure in your own mind exactly what it is you have done before you do.
Always have been, always will be, a WYSIWYG - black is black, white is white - no grey in my life! But I'm mellowing in my old age

doganjo

  • Joined Aug 2012
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Re: When can / can't you claim capital allowances?
« Reply #6 on: July 18, 2016, 12:21:44 pm »
Aha, that makes a bit more sense.


Re-reading the Email, I think they've misunderstood the hayshed repair, thinking it was an improvement (it wasn't, so that should be allowable after all). I may have inadvertently muddied the waters by recording it as 'drainage improvements'.

Watch this space!
Exactly - the works have improved your land and your life, but they are not 'improvements' as such to what was already there - i.e there were land drains already, you have repaired and possible replaced bits of them, but you haven't improved them, other than a bit of more modern type of drainage.
Always have been, always will be, a WYSIWYG - black is black, white is white - no grey in my life! But I'm mellowing in my old age

Womble

  • Joined Mar 2009
  • Stirlingshire, Central Scotland
Re: When can / can't you claim capital allowances?
« Reply #7 on: July 24, 2016, 09:29:27 am »
OK, my accountant has read up on this and taken advice from others, and their considered view is that materials for repairing the hayshed are allowable. However, they say that money spent re-laying field drains and demuddifying gateways is not allowed as a tax deductable expense, though we can claim the VAT back.


So, whilst as per the posts below I could probably challenge this further (or get [member=26320]doganjo[/member] to do my acccounts instead  ;D ), I'm going to let it go as I want everything to be above reproach if we are ever questioned.

"All fungi are edible. Some fungi are only edible once." -Terry Pratchett

doganjo

  • Joined Aug 2012
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Re: When can / can't you claim capital allowances?
« Reply #8 on: July 24, 2016, 10:59:26 am »
I think they are wrong - but you can ask the  HMRC local office for a definitive answer.  They are very approachable these days and will not hold it against you for asking.
Always have been, always will be, a WYSIWYG - black is black, white is white - no grey in my life! But I'm mellowing in my old age

HappyHippy

  • Guest
Re: When can / can't you claim capital allowances?
« Reply #9 on: July 24, 2016, 11:09:32 am »
I have a 'repair and maintenance' column in my accounts spreadsheet (made by my accountant, who is also a smallholder herself) drainage works in fields is maintenance - you HAVE to have good fields in order to keep livestock/have a business.

doganjo

  • Joined Aug 2012
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Re: When can / can't you claim capital allowances?
« Reply #10 on: July 24, 2016, 02:55:54 pm »
So, whilst as per the posts below I could probably challenge this further (or get [member=26320]doganjo[/member] to do my acccounts instead  ;D ), I'm going to let it go as I want everything to be above reproach if we are ever questioned.
HMRC do not take the approach of whether a matter is being above reproach - they view things by fact only.  The best way to find out for both yourself and others on here is to make an appointment with them, take drawings of what was there before and what is there now, if possible, and a full written explanation of it all, including materials used.  They will then issue a 'decision' on the matter.

If I am proved wrong then I apologise - but being retired and running two charities  I don't really need more work anyway lol  :eyelashes: But I'd be interested to know.  :innocent:

I did think of asking your accountant's name but thought that a bit awkward, but do you know whether they are 'chartered', 'management', 'financial', or 'cost' accountants?
Always have been, always will be, a WYSIWYG - black is black, white is white - no grey in my life! But I'm mellowing in my old age

Womble

  • Joined Mar 2009
  • Stirlingshire, Central Scotland
Re: When can / can't you claim capital allowances?
« Reply #11 on: July 24, 2016, 04:24:34 pm »
Hmmm, They are 'proper' chartered accountants, though it must be said not that experienced with farming matters. They therefore took advice on this from another accountant who does more work in this area, and received this response which they forwarded on to me:


Quote
There used to be an Agricultural Buildings Allowance (similar to Industrial Buildings Allowance) which allowed capital allowances on buildings and land related improvements such as drainage work, but unfortunately that was phased out and disappeared around 2011/12.  This leaves farming to apply the same repairs/capital expenditure principles as for other businesses with capital allowances only being claimable on items that can be recognised as plant and work on land/buildings only being claimable on the usual repairs/replacement

Unfortunately in your client's position, it looks more like improvement work to the land which won't qualify for relief.


The honest truth is that I'm just happy to have nice grass growing in my field, and to be able to drive the Landy across without getting stuck!  ;D 
"All fungi are edible. Some fungi are only edible once." -Terry Pratchett

doganjo

  • Joined Aug 2012
  • Clackmannanshire
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Re: When can / can't you claim capital allowances?
« Reply #12 on: July 24, 2016, 05:35:19 pm »
Yes, I know about those changes, but that's Capital allowances they're talking about.  What you have done is normal maintenance not 'improvements'

Stuffy is the word.  Do you pay a lot of tax on your enormous income from the smallholding?  :roflanim:  Perhaps they're not worth their supposedly enormous fees.

You could use a software package and submit your own tax returns  :innocent:

Funnily enough someone asked me for a small farm package the other day - haven't looked for one yet.  Do you use excel for recording everything?
Always have been, always will be, a WYSIWYG - black is black, white is white - no grey in my life! But I'm mellowing in my old age

Womble

  • Joined Mar 2009
  • Stirlingshire, Central Scotland
Re: When can / can't you claim capital allowances?
« Reply #13 on: July 24, 2016, 07:55:16 pm »
You know, I'd really rather not talk about my enormous smallholding income too much. I'm embarrassed to admit just how much money we make for so few hours effort  :roflanim: .


I've been using Excel to date, but I'm just about to switch to Free Agent for recording the accounts, as that's what I use for my main job, so I'm really familiar with it.

That's the same reason for sticking with the same accountant for everything, even though they're not farm specialists. They are willing to treat the farm income as an add-on to my tax return, so this works out cheaper.
"All fungi are edible. Some fungi are only edible once." -Terry Pratchett

Womble

  • Joined Mar 2009
  • Stirlingshire, Central Scotland
Re: When can / can't you claim capital allowances?
« Reply #14 on: July 24, 2016, 09:12:44 pm »
CA and ACCA.


However, I'm a Chartered Engineer myself and I still make mistakes!  ;D
"All fungi are edible. Some fungi are only edible once." -Terry Pratchett

 

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