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Capital allowance


Hi

I am helping a friend with his self assessment tax return. He is a sole trader and works as a magician and children's entertainer. We are having difficulty understanding how to calculate the capital allowance figure he should be entering on his return. In previous years he has used a book-keeper who has calculated his capital allowance at what looks like 40% of a new purchase in that tax year and 25% of brought forward balance (does this make sense?!).

Reading through the guidance on HMRC it is only showing calculations for 8%, but would this be on new purchases or balance brought forward?

Any help would be greatly appreciated.

K

 

 

 



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Hi K

wow 40% thats old then!! If the value is less than £1000, you can write off in full as "allowance for small balance of unrelieved expenditure" otherwise its 18% - its been 18% since April 2012

20% between 2008 and 2012 and 25% was before April 2008...

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Really sorry to ask this but just need to confirm that you are talking about capital allowances and not depreciation aren't you? It's just the mention of 25% ongoing that makes me ask that question.


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I actually thought that Shaun, but with the 40% and self assessment return being mentioned, I didn't see how it could be the accounts.

Another thing I am picking up on, just now, is the 8% so I am wondering if a car is involved with over 165 CO2

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Hi Michelle,

I thought about the 40% first year and thought it may be some internal policy on a reducing balance approach.

On the self assessment line I read it that the poster is preparing it this year but the figures are not neccessarily from last years self assessment. Rather, the mention of the bookkeeper made me think are they coming straight out of the books, thinks, depreciation!

I fear that this is one where the poster hasn't really given us enough to go on and we're filling in the gaps without knowing all of the facts.


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Thanks for your responses everyone, sorry to be vague but i don't really understand it myself! I meant 18% rather than 8%!

The figures were taken from a printout entitled Capital Allowance, where the figures do go back a few years but the end total is carried forward to the next year, so the figure carried forward has been calculated at 25% and if anything new has been bought i.e.. laptop that is calculated at 40% and then those figures added together has been entered on last years tax return under capital allowance.

In this tax year my friend has bought a shed which he uses for business, so I just need to know how this is entered onto his return and what do we do about the 'capital allowance balance' carried forward from last year?

Does this make any more sense?

K


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If the tax written down value brought forward is less than £1000, you can write off in full as "allowance for small balance of unrelieved expenditure" - otherwise its 18%

The new shed can be 100% AIA - but obviously he needs to consider whether there is any personal use.

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Ok that's great, thank you so much for your help Michelle and Shaun

K

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Sorry to disagree Michelle but surely the shed (garden office) is a structure and as such no capital allowances / AIA would be available?



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K,

do you have access to the prior years self assessments and are the included figures on the SA103S the figures from the printout calculations that you have?

I still worry that the figures you have are the depreciation amounts to be removed from the CA calculations before the actual CA's are applied.

kind regards,

Shaun.



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Shaun would that mean we would just enter the amount the shed cost on to expenses?

I don't have the previous years self assessments only last years 2013/2014.
Can I just ask what are depreciation amounts? And when would they be applied?

Regards
K

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As I understand it, its not fixed (can be moved easily, much like a storage cupboard) and so would qualify as plant

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Yes it can be moved Michelle.

K

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A small shed would just be like an outdoor cupboard, in my mind. I have a shed outside and it is 4 foot wide, by 1 foot deep and maybe 4 foot tall... that is a shed but couldnt be classed as a structure. I am assuming however, that your friend's shed is a bog standard garden shed.. maybe 6-7ft high, a few feet wide and deep.. not some massive summer house type effort??

If it was something like an agricultural shed, it would be a structure.

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Regards depreciation - I am assuming you are doing a simple income and expenditure statement for the tax return, and wont be putting in depreciation... which is normal if you don't need a balance sheet/full set of accounts.

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KickingK wrote:

Shaun would that mean we would just enter the amount the shed cost on to expenses?

I don't have the previous years self assessments only last years 2013/2014.
Can I just ask what are depreciation amounts? And when would they be applied?

Regards
K


Hi K,

sorry, been busy and just come back to this.

No, its capital in nature but no capital allowances are available against structures (even temporary structures are still structures).

Its one of those big bones of contention that comes up quite a bit both here and on Aweb that posh sheds are not allowable for tax purposes.

Worst part about it is that clients keep buying them and then tell us rather than us giving them the bad news up front that its tax relief on loss at disposal.

 

Depreciation is an accounting concept and capital allowances are a tax concept.

You depreciate an asset through the books as an expense and that adjusts the paper profit... However, at the period end for the tax calculation the depreciation is added back to the profit (effectively backing it out) and for tax purposes you apply capital allowances. Now that may be in the form of Annual investment allowance, first year allowances or standard writing down allowances.

There are a lot of complex rules and regulations around that area so if you are not confident in your knowledge I would advise even for simple businesses to use an accountant until you do have the right level of understanding and confidence.

 

Kindest regards,

Shaun.



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FoxAccountancyServices wrote:

As I understand it, its not fixed (can be moved easily, much like a storage cupboard) and so would qualify as plant


A storage cupboard would be fixtures and fittings which would be within the semi permanent structure so would be allowable either as an expense (if immaterial) or with AIA / WDA's if material.

The shed itself would not be considered to be like a storage cupboard as it is a free standing structure (all be it a temporary one).



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FoxAccountancyServices wrote:

Regards depreciation - I am assuming you are doing a simple income and expenditure statement for the tax return, and wont be putting in depreciation... which is normal if you don't need a balance sheet/full set of accounts.


Lol, you're being contentious this evening Michelle.

Come on, admit it. No matter how small a business is you would still create a balance sheet for them. If you don't, how the heck would they know where they stand in anything other than the current period?

Actually, thinking about it, anyone who needs to hire one of us is big enough that they need the job done properly so the point is actually mute over whether depreciation should be included as a balance sheet would always be produced.

 

 

 



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FoxAccountancyServices wrote:

A small shed would just be like an outdoor cupboard, in my mind. I have a shed outside and it is 4 foot wide, by 1 foot deep and maybe 4 foot tall... that is a shed but couldnt be classed as a structure.


Oops, missed this one. Sorry, wasn't ignoring it.

Your arguement here is not really that its not a structure (that cannot be argued) but rather that it's an immaterial purchase similar to the stapler not being classed as an asset argument.

 

 



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Hi Shaun

I can totally see where you are coming from, on this... but I still feel that this could be accepted as plant, fixtures, equipment, whatever you want to call it.

There is no mention that it is a garden "office" as you've mentioned earlier, and we dont know that its a "posh shed" either. I took it to be a bog standard small garden shed, that the client stored the "tools" of his trade in. That means it has a function within the business, rather than it being a setting - which, to me, is a big argument towards plant.  If its not some massive shed, and not overly expensive, I don't think HMRC would even care. If they decided it was a wrongful claim, its likely the tax to be paid back would be below the limit at which they bother to request repayment.  

A cupboard is a free standing structure, just as a shed is.  And they could be deemed as having the same life, be the same cost, and do the same function. The point about my shed is that, its not that much bigger than the cupboard I use for my records... which I claimed AIA on... what if I had decided to use my shed as my record store? The only difference would be the location - out instead of in. If you want to take it further - what if I don't have room to fit my nice DFS wooden cupboard in my house, and so put the cupboard outside, that wouldn't make it a structure, that's not allowable. I could cover it in plastic so it didn't get wet. biggrinbiggrin

To be fair, we don't know the value of this shed, and it could actually be acceptable to put through as expenses - which gets 100% tax relief as does AIA.  

I think the whole picture has to be considered and given context.  

Bit presumptious on the value of my shed, Shaun... Never had a stapler cost me £300 ;) Did not consider it to be an immaterial purchase when I handed my cash over! hmm

 

As for the simplified accounts, which contain an income and expenditure account and an accountants report.. I have a few of these - they don't have a business bank account or many assets, and I am the only accrual.  They don't want to pay much, they just list their sales and expenses invoices, I adjust for a few things and create and excel I&E with comparatives (saving the client the cost of the software licence) and then I do the return.  Not going to make a mountain out of molehill... that's your job, my love winkbiggrin



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Hi, sorry had to go to bed last night.

I haven't actually seen the shed but I know it cost just over £1000. I might try and get through to HMRC helpline to clarify what to do, I have tried this before before but such long waiting times!!!!

K

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Over a £1000?! Hmmm....that's probably going to be pretty big! Like garage big! Shaun... structure it is!! :))

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Back at my laptop now so can type a proper reply...

K, I think giving HMRC a ring, might be worthwhile on this one. Tell them the cost, the dimensions and everything it will be used for. There is nothing specific said about sheds of this nature, so its fair to say there's scope for interpretation... and, if it were a small bog standard £200 shed, I'd have said there was argument for it, but if you are talking about something huge, it would be harder to argue. Like I said, you have to considered the complete picture - size, cost, usage, the tax saving you would gain, and whether you have a decent enough argument.

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FoxAccountancyServices wrote:

Hi Shaun

I can totally see where you are coming from, on this... but I still feel that this could be accepted as plant, fixtures, equipment, whatever you want to call it.

There is no mention that it is a garden "office" as you've mentioned earlier, and we dont know that its a "posh shed" either. I took it to be a bog standard small garden shed, that the client stored the "tools" of his trade in. That means it has a function within the business, rather than it being a setting - which, to me, is a big argument towards plant.  If its not some massive shed, and not overly expensive, I don't think HMRC would even care. If they decided it was a wrongful claim, its likely the tax to be paid back would be below the limit at which they bother to request repayment.  

A cupboard is a free standing structure, just as a shed is.  And they could be deemed as having the same life, be the same cost, and do the same function. The point about my shed is that, its not that much bigger than the cupboard I use for my records... which I claimed AIA on... what if I had decided to use my shed as my record store? The only difference would be the location - out instead of in. If you want to take it further - what if I don't have room to fit my nice DFS wooden cupboard in my house, and so put the cupboard outside, that wouldn't make it a structure, that's not allowable. I could cover it in plastic so it didn't get wet. biggrinbiggrin

To be fair, we don't know the value of this shed, and it could actually be acceptable to put through as expenses - which gets 100% tax relief as does AIA.  

I think the whole picture has to be considered and given context.  

Bit presumptious on the value of my shed, Shaun... Never had a stapler cost me £300 ;) Did not consider it to be an immaterial purchase when I handed my cash over! hmm

 

As for the simplified accounts, which contain an income and expenditure account and an accountants report.. I have a few of these - they don't have a business bank account or many assets, and I am the only accrual.  They don't want to pay much, they just list their sales and expenses invoices, I adjust for a few things and create and excel I&E with comparatives (saving the client the cost of the software licence) and then I do the return.  Not going to make a mountain out of molehill... that's your job, my love winkbiggrin


Morning Michelle,

There are a few points in the above that need to be answered so I've extracted the lines out and will treat them seperately (full version shown above for people to review context rather than going back through the posts)

 

If its not some massive shed, and not overly expensive, I don't think HMRC would even care.

 

To be fair, we don't know the value of this shed, and it could actually be acceptable to put through as expenses - which gets 100% tax relief as does AIA.  

Very much comes down to the shed being immaterial (say sub £250) to expense rather than capitalise. In this instance the cost is definitely pushing it to capitalise.

 

Bit presumptious on the value of my shed, Shaun...

You gave the dimensions, I'm a bloke, we have a basic idea of the cost of sheds from Wickes / B&Q / Argos.  Is only really when sheds start to get bigger that they start being wildly variable cost. My appologies if my assumption was far off mark.

 

Never had a stapler cost me £300 ;) Did not consider it to be an immaterial purchase when I handed my cash over! 

I would have put that at the very edge of immaterial for most businesses that we deal with. I know that some go as high as £500 but personally I tend to work to £250 as the cut off although for various clients I've capitalised ladders costing £80 and even spanners costing £3! (lol, Materialarity in agregate) conversely I've expensed a printer at £300.

 

As for the simplified accounts, which contain an income and expenditure account and an accountants report.. I have a few of these - they don't have a business bank account or many assets, and I am the only accrual.  They don't want to pay much, they just list their sales and expenses invoices, I adjust for a few things and create and excel I&E with comparatives (saving the client the cost of the software licence) and then I do the return.  

So really its an issue with the expense of Sage in that it costs me no more no matter how many clients that I have so everyone gets a professional looking full set of accounts.

Have you thought of using VT Accounts? under £200 a year you end up with some very happy clients amazed at how much they get for their money.

I'm not talking VT Transaction+ as I know that you didn't take to that (it is very different to Sage) but the accounts package is used by a lot of practices to put the information from the trial balances of all manner of packages from Sage to Excel into a format that it's difficult to differentiate from accounts produced by top end software such as IRIS.

I work with a chartered practice who produce all of their accounts in VT Accounts where the bookkeeping is in Sage & Xero. For my own clients I use VT Transaction+ and then push through to VT Accounts.

Not going to make a mountain out of molehill... that's your job, my love 

Tut, ya lil tike.

We have to make mountains out of molehills. It's the responsibility that we take on by posting here.

Consider the audience.

Whilst the bookkeeping qualifications keep churning people out telling them that they are able to produce accounts and tax returns we need to tell them not just the right way to do things but also why they are doing them that way. Its one of the the great things about this site in that we are fixing the people that professional bodies pretty much abandon post qualificatuion as works in progress and helping get them ready for the real world out there.

This example of a shed is a really good one in that it's a mistake that's made a lot on peoples assumption of what a fair tax system would do rather than what the actual tax system does.

We just add the bit about the materialarity override at the end of a discussion after the reader has seen that capital allowances are not available for the purchase.

In the case of the poster here, as expected a shed of above £1k would not be considered immaterial, it's capital expenditure for which no capital allowances are available.

The whole concept of posh sheds I would actually classify it as a hot topic where every thread that covers the subject has to cover it properly as its not a fair system and not completely logical.

If the comment is meant about me making a mountain out of a molehill with everything rather than just this thread... I would say that I do what I feel is neccessary to help the reader become better at what they do.

I am not always right and when I am not people are not affraid to debate points (as we are doing here) and that debate in itself makes its readers stronger bookkeepers.

Certainly it was a debate like this one where I learnt a lot about red diesel that I did not know previously. Sure that here must be threads where you have learnt something here that you didn't know previously Michelle.

 

That was fun, now what other thread can I make a mountain out of, lol.

hope you have a good day,

kindest regards,

Shaun.

 

 

 

 

 



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FoxAccountancyServices wrote:

Back at my laptop now so can type a proper reply...

K, I think giving HMRC a ring, might be worthwhile on this one. Tell them the cost, the dimensions and everything it will be used for. There is nothing specific said about sheds of this nature, so its fair to say there's scope for interpretation... and, if it were a small bog standard £200 shed, I'd have said there was argument for it, but if you are talking about something huge, it would be harder to argue. Like I said, you have to considered the complete picture - size, cost, usage, the tax saving you would gain, and whether you have a decent enough argument.


Hi Michelle,

sorry, I was writing the other reply and you've snook two more in in the interim,

There is no argument except that the expenditure is immaterial (i.e. a £200 shed) where one would expense.

If its material to the business and its free standing structure then to my mind the dimensions do not matter

 

 



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Shamus wrote:
As for the simplified accounts, which contain an income and expenditure account and an accountants report.. I have a few of these - they don't have a business bank account or many assets, and I am the only accrual.  They don't want to pay much, they just list their sales and expenses invoices, I adjust for a few things and create and excel I&E with comparatives (saving the client the cost of the software licence) and then I do the return.  

So really its an issue with the expense of Sage in that it costs me no more no matter how many clients that I have so everyone gets a professional looking full set of accounts.

The licence issue is just one part of it, more work has to be done where you have a balance sheet, in that the bank and cash has to be balanced (and you know how cash can be), debtors and creditors properly verified.  A simple I&E takes a loss less time, and is the biggest factor in price. 

Not going to make a mountain out of molehill... that's your job, my love 

Calm down, it was a playful joke, based on another post where you said something was "your job" instead of mine. And, I meant I'm not going to make a mountain out of a set accounts, when a molehill I&E is all it requires.

I am not always right and when I am not people are not affraid to debate points (as we are doing here) and that debate in itself makes its readers stronger bookkeepers.

Certainly it was a debate like this one where I learnt a lot about red diesel that I did not know previously. Sure that here must be threads where you have learnt something here that you didn't know previously Michelle.

Absolutely agree, and that is why you and I make such a good team.. we bring both sides of the debate to the table.. you are excellent at legislation, the rules as they are written, and I bring the day to day realities, that I have experienced working under numerous chartereds, and being involved in investigations.  

That was fun, now what other thread can I make a mountain out of, lol.

hope you have a good day,

It certainly was, I love it when we get all punchy!  Makes for good reading!! Have a good day too, sweetpea! 

 

 

 

 


 



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Shamus wrote:
 I know that some go as high as £500 but personally I tend to work to £250 as the cut off although for various clients I've capitalised ladders costing £80 and even spanners costing £3! (lol, Materialarity in agregate) conversely I've expensed a printer at £300.

 Hi Shaun

Can I ask what the rationale behind that is?  I'm guessing a printer should have 3-4 years life, especially one that expensive, I suppose value wise it could be classed as an expense item, but then it's gone over your cut off point, so would have assumed a capital item for you.

But why capitalise the ladders (material to the business?) and definitely why the spanner? I could never imagine depreciating such a small amount.

Regarding cut off points, is there an arbitary figure, or is it down to the person doing the books? (I opted for £350 but can adjust if it makes more sense to)



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FoxAccountancyServices wrote:
you are excellent at legislation, the rules as they are written, and I bring the day to day realities, that I have experienced working under numerous chartereds, and being involved in investigations.  

Hi Michelle,

I probably need to fill in a bit of my background here as I appreciate that its commonly known that I was a career changer from the management accounting side of the fence (although I have been firmly on this side for well over ten years now so longer than many accountants who have only been on one side of the fence!).

The reality is that when I am quoting the letter of regulation rather than common interpretations that also comes from many years working alongside chartered, chartered certified and management accountants in the very largest businesses ensuring that their accounting and other financial systems, products and procedures adhere both to the letter of regulation and are cost effective to the clients needs. That also includes detaled investigations and dealing with the people who set the legislation and guidance directly.

The banking induced mindset of people such as Joanne and myself (#1) is very much rooted in adhering to the letter of legislation whilst also considering overrides such as the materialarity override spoken about in this thread.

Since being on the practice side of the fence I have witnessed a prevelence of the there or there abouts type approach largely driven by practices needing to get through too much work with too few people in too short a time frame. 

I fully appreciate it and its necessity for many practices to fit in all of the work that they need to but its just not me. My approach is firmly rooted in my very detail oriented banking heritage making every set of books a virtual audit, and with quite a black and white view on what is correct and what is not... Probably explains why my work week lasts the full seven days mostly till 2-3 in the morning! lol.

And talking of work, I really must do some.

have fun, talk later.

Shaun.

#1 Joanne is actually quite different to me in that she was front office business banking senior management where I was back office management consultancy in retail and corporate. Predominantly Payments, Currency and Fraud.



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Leger wrote:
Shamus wrote:
 I know that some go as high as £500 but personally I tend to work to £250 as the cut off although for various clients I've capitalised ladders costing £80 and even spanners costing £3! (lol, Materialarity in agregate) conversely I've expensed a printer at £300.

 Hi Shaun

Can I ask what the rationale behind that is?  I'm guessing a printer should have 3-4 years life, especially one that expensive, I suppose value wise it could be classed as an expense item, but then it's gone over your cut off point, so would have assumed a capital item for you.

But why capitalise the ladders (material to the business?) and definitely why the spanner? I could never imagine depreciating such a small amount.

Regarding cut off points, is there an arbitary figure, or is it down to the person doing the books? (I opted for £350 but can adjust if it makes more sense to)


Hi John,

the printer client had over £600k turnover. £300 was very immaterial to all three common tests (#1) so I extended their cut off.

The ladder was because the client wanted to capitalise and there was no reason not to. (but it's inclusion here is because it stuck out in my mind as a strange choice, but, no tax implications in that instance so gave the client what they wanted... I'm just so accomodating, lol)

The spanner was because materiality is not by asset but by class of asset (so class of asset in agregate).

on its own you would expense but considering all of the class of asset (tools) as if purchased as a single item as all purchased in the same period the tools asset becomes material in aggregate (the full toolbox is regarded as a single asset rather than a collection of individual items (#2)).

For the cut off point I don't think that HMRC would ever make a song and dance about expensing assets below £100 and for higher than that I would not go further than £500 for any business and the rate set should be covered by the three tests below.

I generally set £250 as the cut off unless the business looks as though it will be constantly failing one or more of the tests or there is good reason to extend that limit.

Hope that helps,

kindest regards,

Shaun.

 

#1 Immateriality is generally determined as (all three tests should be passed) :

< 0.5% of turnover

< 1% of total assets

< 5% of pre tax profit.

if it fails any one then the item is probably material , But even if it passes all three you still need to be sensible with the decision of whether to expense or not.

 

There is actually a seperate set of tests in that an item is definitely meterial is it passes any one of :

> 1% of turnover

> 2% of total assets

> 10% of pre tax profit.

Between the two levels is an accountants judgement call on whether to expense or capitalise.

 

#2 Your going to ask about component replacements now aren't you! Just expense them as such does not meet any of the criteria of post purchase capitalisation. Namely

  • Enhance economic benefit (the tool box as a whole is still worth the same)
  • Restore previously consumed economic benefit (the tool box as a whole was worth no less with one less spanner in it)
  • Replace seperately depreciated component (the toolbox was depreciated as a whole, not by individual item)


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Shamus wrote:
 

The spanner was because materiality is not by asset but by class of asset (so class of asset in agregate).

on its own you would expense but considering all of the class of asset (tools) as if purchased as a single item as all purchased in the same period the tools asset becomes material in aggregate (the full toolbox is regarded as a single asset rather than a collection of individual items (#2)).

 

#1 Immateriality is generally determined as (all three tests should be passed) :

< 0.5% of turnover

< 1% of total assets

< 5% of pre tax profit.

if it fails any one then the item is probably material , But even if it passes all three you still need to be sensible with the decision of whether to expense or not.

 

There is actually a seperate set of tests in that an item is definitely meterial is it passes any one of :

> 1% of turnover

> 2% of total assets

> 10% of pre tax profit.

Between the two levels is an accountants judgement call on whether to expense or capitalise.


 Hi Shaun

What do you mean by same period?  Monthly or yearly?  If monthly, fair enough but I can see problems with yearly, eg how do you determine purchase date and depreciation in the first year?

Regarding materiality.  I have just done completed books that consists of an asset valued at just over £400.  Should I have added further assets on anything over £8?  



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Hi John,

for the accounting period. i.e. yearly.

Surely the problem is the other way around as you would be adding elements to an assets value throughout the period if you were attempting to do it monthly.

No issue with the year as you've added up all of the assets classed together in the period.

General rule is that for this sort of acquisition you go with a full years depreciation in the period of acquisition and no depreciation in the the year of disposal.

As mentioned in the previous post, I don't see HMRC having an issue with using £100 for the smallest businesses as a deminimus level.

Worth noting, this is not me saying this, these are the standard percentages used in materialarity calculations. Also there's a line from the standards on the definition of materialarity that is worth remembering.

"An item is material where its ommission or misstatement might reasonably be expected to influence the decidions of the users of the information" (sure thats not word perfect but its the general message.

HTH,

Shaun.



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Shamus wrote:
FoxAccountancyServices wrote:
you are excellent at legislation, the rules as they are written, and I bring the day to day realities, that I have experienced working under numerous chartereds, and being involved in investigations.  

 

Shaun.

#1 Joanne is actually quite different to me in that she was front office business banking senior management where I was back office management consultancy in retail and corporate. Predominantly Payments, Currency and Fraud.


 

Bloomin heck - Im missing in action for 24 hours and there is domestic and a love in on one thread!        

Only skim reading between meetings, but Shaun - wash your mouth out with Fairy Liquid.  Business banking!!!!!  disbelief I flippin wasnt.    I was   Mid Corporate (£25m+ turnover) and Large Corporate (£75m+ turnover) and even Institutional Banking (although I know some say I was institutionalised!).   



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Cheshire wrote:
Shamus wrote:
FoxAccountancyServices wrote:
you are excellent at legislation, the rules as they are written, and I bring the day to day realities, that I have experienced working under numerous chartereds, and being involved in investigations.  

 

Shaun.

#1 Joanne is actually quite different to me in that she was front office business banking senior management where I was back office management consultancy in retail and corporate. Predominantly Payments, Currency and Fraud.


 

Bloomin heck - Im missing in action for 24 hours and there is domestic and a love in on one thread!        

Only skim reading between meetings, but Shaun - wash your mouth out with Fairy Liquid.  Business banking!!!!!  disbelief I flippin wasnt.    I was   Mid Corporate (£25m+ turnover) and Large Corporate (£75m+ turnover) and even Institutional Banking (although I know some say I was institutionalised!).   


Pah, pin money.

Payments. £450 billion per day.

Lol.

Hi Jo, whilst the cats away and all that wink

 



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-- Edited by Cheshire on Thursday 1st of October 2015 07:47:57 PM

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That's the first time I've seen you speechless Joanne biggrinbiggrin

 

Thanks for the explanations Shaun, still lots to learn methinks



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Leger wrote:

That's the first time I've seen you speechless Joanne biggrinbiggrin

 

Thanks for the explanations Shaun, still lots to learn methinks


 No chance John. I added an appropriate emoticon from my ipad but for some reason it's not shown up. Still on ipad so not much point retrying neither



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Hi K

I was intrigued to look into this further, as like Shaun says, its a bone of contention regularly. I contacted a tax specialist who is an associate, and this is his reply... which goes along with the idea that a small shed would be ok as plant, but a big shed wouldn't.

About the shed and capital allowances, as you say function and setting are important considerations. This can be a complicated subject and a problem is that plant is not defined in tax law but the legislation does provide lists of exclusions and allowables.

Is the shed a building or structure? Some sheds require planning permission and I would say these are not allowable. The fact that the shed is moveable is not conclusive. There was the case of a moveable floating hulk which provided the setting for a restaurant and held by the courts not to be plant. Some structures can be regarded as plant for CA, such as moveable partitions, lighting apparatus that improve ambience. Plant must have a function to qualify for CA and I suppose the shed has a function, but so does the building.

A moveable building intended to be moved in the course of trade is allowable and HMRC allow temporary huts which are moved from one site to another and used by builders and contractors as storage sheds as site plant, but I sense your client's is intended to be permanent.

Being practical for a claim, a storage cupboard to store tools would be plant. I would also claim for a shed that is only as big as a storage cupboard to provide tools (buyable from DIY shops for a few hundred pounds) but a shed where work can be done would become the setting for the trade would not be allowable.

It would seem that the £1,000 shed would not qualify as plant.

Hope this helps :)



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Hi Michelle,

although we actually concur over treatment I think that its worth pursueing this idea further as I am not seeing the amount that the building costs (where such does not make the purchase immaterial) as a major contributing factor.

I'm not reading your response from your tax specialist in the same way as yourself in that we are talking here about a temporary structure rather than a mobile structure.

For example, a porta potty is a structure that is plant. To move it you would pick up the whole thing and move it from one site to another. Conversely a shed of the same size would need to be dismantled and reassembled. To my mind that would be one of the (but not the only) identifying differences between plant and a structure.

Then again, a shed of the same size as a porta potty would be immaterial (and if its not the purchaser has been ripped off!) so could be treated the same as plant.

A lot of the debate here is about semantics but as this is an issue that comes up again and again with clients (I think all of us have at least one client who has been out and bought a posh shed assuming that they would get tax relief on it) I think that it's an important one to discuss at length and in detail.

I agree with everything that your tax specialist has said but I don't believe that the debate is quite put to bed yet.

kindest regards,

Shaun.

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Shamus wrote:

Hi Michelle,

although we actually concur over treatment I think that its worth pursueing this idea further as I am not seeing the amount that the building costs (where such does not make the purchase immaterial) as a major contributing factor.

I'm not reading your response from your tax specialist in the same way as yourself in that we are talking here about a temporary structure rather than a mobile structure.

For example, a porta potty is a structure that is plant. To move it you would pick up the whole thing and move it from one site to another. Conversely a shed of the same size would need to be dismantled and reassembled. To my mind that would be one of the (but not the only) identifying differences between plant and a structure.

Then again, a shed of the same size as a porta potty would be immaterial (and if its not the purchaser has been ripped off!) so could be treated the same as plant.

A lot of the debate here is about semantics but as this is an issue that comes up again and again with clients (I think all of us have at least one client who has been out and bought a posh shed assuming that they would get tax relief on it) I think that it's an important one to discuss at length and in detail.

I agree with everything that your tax specialist has said but I don't believe that the debate is quite put to bed yet.

kindest regards,

Shaun.


Hi Shaun

I have already sent further queries this morning, asking a few more specific questions, so will have to wait for a reply before I can post any more.  Here's some of my thoughts on your post - brainstorming here, not trying to put a definitive answer on it. As you say, its important to discuss at length and in detail.   

Although we actually concur over treatment I think that its worth pursueing this idea further as I am not seeing the amount that the building costs (where such does not make the purchase immaterial) as a major contributing factor.

As you say cost isn't necessarily a contributing factor but lets be honest - In a micro entity investigation, HMRC are only going to pick up on something like what we are discussing, if its expensive, because they will be unhappy about the amount of tax they missed out on, so the higher the cost, the more consideration has to be given to it, and other factors. They wouldn't waste their time, otherwise.

I'm not reading your response from your tax specialist in the same way as yourself in that we are talking here about a temporary structure rather than a mobile structure.

He has addressed the idea that temporary huts would be allowable but that the shed is more permanent, which makes sense to me, as temporary normally follows because the asset is moved from place to place, per contract. To be honest, I am not looking so much at temporary or moveable in the sense you are (my moveable argument being more that it was small storage, moveable much like a bookcase or cupboard) - My biggest argument is "The cases where a structure was held to be plant show that a building or structure can be plant if, and only if, it is apparatus for carrying on the business or employed in the business rather than being the premises or place in which the business is carried on" - if the shed is only to house the magicians equipment, that to my mind, fulfils this, and this forms part of the reasoning, along with other factors. 

For example, a porta potty is a structure that is plant. To move it you would pick up the whole thing and move it from one site to another. Conversely a shed of the same size would need to be dismantled and reassembled. To my mind that would be one of the (but not the only) identifying differences between plant and a structure.

I personally wouldn't see the dismantle and reassemble so much the issue, as there are lots of plant items that would need to be dismantled in order to move.  For example, concert lighting once assembled would be a massive structure but this would be considered plant, as would scaffolding. These would be temporary also. Of course, these are massively different in nature, and we know that the shed wouldn't get dismantled or moved, unless the client was reorganising the garden or moving... but the same could be said for taking apart a large bookcase/cupboard and moving it inside an office.  (That's where I was going with "moveable") so I personally wouldn't rule out plant based on that.

Then again, a shed of the same size as a porta potty would be immaterial (and if its not the purchaser has been ripped off!) so could be treated the same as plant.

As you have said above, materiality is based on client to client, and for this thread, we have decided that the shed is material.  We know straight away that the cost leads us away from PL write off.  For most of my micro entities, I would probably have to capitalise anything over £300, maybe £200 for some, hence why I really want to understand this fully.

 

My associate has already confirmed that a small, tool housing shed, that was relatively inexpensive, would be ok as plant.  I trust this, as he is ex-revenue and is regularly involved in consultations with HMRC on new legislation such as CAs.  In my experience of micro entity investigations, HMRC would not waste time arguing over it.  

But it leads to other interesting thoughts...

If the shed was small and housed tools, but was expensive - then surely cost is the only thing that would get HMRC going, due to the tax they are missing out on.  Would it be worth claiming AIA, with the argument that the item is small storage. And one would have to hope the inspector agreed that it was employed by the business and not where the business was carried on?

 

If the shed was large, only housed tools, but was inexpensive - what then?  It could then be said that tax relief was petty, so HMRC wouldnt bother arguing over it, but you could also say that its size takes it out of the small storage domain? And yet still it is employed by the business, rather than where the business is carried on.  Would the cost and function possibly trump the size?

 

To my mind, what we have is both large and expensive, but still employed by the business rather than where the business is carried on.  So to my mind, size and cost do have a bearing.. because the business is not being carried on this shed, and HMRC specifically say a structure is plant if it is employed by the business rather than where the business is carried on.  So, I have asked my associate for further clarification on this, to see whether the function would argument enough, as he says "I would also claim for a shed that is only as big as a storage cupboard to provide tools (buyable from DIY shops for a few hundred pounds) but a shed where work can be done would become the setting for the trade would not be allowable..  This isn't clear enough about why he wouldn't claim a large expensive shed, if it only housed tools, and no work was done in it.  And I would really like to understand that.

LOL... My brain feels like mush! Oh well, nearly beer oclock!



-- Edited by FoxAccountancyServices on Monday 5th of October 2015 04:28:59 PM

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Hi Michelle

Sorry I have been away for the weekend so only just caught up with comments (and not had a chance to contact HMRC, so no further forward!). Who knew a shed could be so complicated!!!!

I have been reading the debate with interest and the info from your tax specialist is very welcome. I have asked my friend for measurements of the shed incase this helps. I do know that he didn't need to get planning permission for it, it is in his garden so this is where it will stay but it could be moved (if he moved house for example). And it is only used for storage of his business equipment.

So at the moment it is looking like he can't put it down as Capital Allowance (or AIA) and he can't put it as a business expense, is this correct?

Thank you to you and Shaun, and everyone else debating this for me. I appreciate it very much .

K

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The shed 8 x 12 feet.


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HI K... do you know what the exact cost was, and would you confirm its only to house equipment, nothing else? I will pop those details over to the guy I've been tapping up for information!! I'd rather give him the complete picture so he can hopefully give me a complete answer

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Oop sorry! Didnt see your post above which confirms its only used for storage..



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Thanks so much Michelle that would be great. The cost of shed was £1101.80.

K

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Hi all... just had word back in this..


Here is my question...

Just found out some more specific details about this shed!!

Size = 8 x 12 foot
Cost over £1000 - Let's say £1500 for arguments sake
Only used to house magicians equipment, nothing else.

If you were doing a tax return, how would you treat this and why?

The reason I ask for your specific view is because the HMRC website says:

"The cases where a structure was held to be plant show that a building or structure can be plant if and only if it is apparatus for carrying on the business or employed in the business rather than being the premises or place in which the business is carried on"

So I am struggling to understand why cost and size come into it, as surely its employed by the business rather than a setting?

Really appreciate your time on this one.... I'll owe you a cheeky whiskey ;0)

PS... everyone says thanks for the information so far.


His reply...

Apologies for the delay in replying. If the equipment is for storing only (akin to a cupboard), I would say it is plant. If you could do some work in it, I would say it is setting and not plant.  8x12 foot is a big shed. It is as big as many bedrooms.

 



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So your tax specialist agree's with me wink

Tut, when will people start listening to me, lol.

Thanks for posting the update Michelle.

 

 



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Yes, he agrees its a big shed.  And at that size, he wondered if work was being done in it.  I saw him tonight, and he said for that value, he would go for plant. So long as it could be proved no work was being done in it, it was only for storage... HMRC visit would confirm that, as no doubt it would be full of all the magician saw boxes lol!  He doesnt think they would kick up a fuss for a £220 tax saving.

If you think about it, if he had two foot wide shelving on either side, and the back, that only leaves a 4x6 walkway to move about in.  If he does actually have something like a saw box, that would take up a lot of room.  But its not for us to judge that, if he tells K its only for storage, then its up to him to prove it, if he gets a visit! 



-- Edited by FoxAccountancyServices on Tuesday 27th of October 2015 11:19:12 PM

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