I have just returned with my client from a meeting with the Inland revenue who wish to disallow premises rent and rates payments because they were paid by the father and not out of the business. The father paid it because the business could not afford to pay it out of the business bank account
The business is a hairdressers and made losses for a few years because of its poor location due to vanderlism ect The lease is a long council lease which the father had to be a guarantor and has tried to give back unsuccessfully to the council, solicitors also have been a waste of time. The lesser of two evils financially was to pay the rent and rates as the business could not afford to and if it wasn't paid the council would call in their guarantee. but now the taxman is saying as the expence was paid by a third party it will not be allowable. Your comments please!
RALPH HAYDEN
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third party payment
thanks for the comments so far. The rent and rates were included on the accounts but the Inspector was adamant that a genuine business expense if paid by a third party was not allowable. I commented that I strongly disagreed and if necessary would go to the Commissioners
Not so simple?
Does the disallowance create a taxable profit? Are the losses actually being utilised, or simply carried forward?
If the business has never been profitable, Inspector could argue that it isn't a business at all!
Also, query suggests father tried to hand back the lease. Is he simply a guarantor, or is the lease aactually in his name?
Allowable Expenses
I assume that the actual expense has been charged into the business? If that is the case, just politely remind the Inspector that a business expense has only to be incurred on behalf of the business and accounted for in the business to be allowed as a business expense, where qualifying under current UK tax laws. Who paid the actual bill is irrelevant. Follow the accounting entries in the previous answer if you have not yet included the expenses in your accounts.
Rubbish
This is just a loan from father, or a gift to the proprietor who then introduced the capital to the business.
The inspector is being a worky-ticket.