Free-standing washing machine - unfurnished lettings

Free-standing washing machine - unfurnished...

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dear members,

with the new rules on renewals allowance, is buying a free-standing washing machine capital or expenditure/. or none at all?

I would be grateful fi you could point me to the manual that says this

Replies (14)

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By ChrisA
01st Aug 2014 21:02

None at all
Don't have a reference I'm afraid just notes from a CIOT monthly meeting!

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The triggle is a distant cousin of the squonk (pictured)
By Triggle
01st Aug 2014 21:32

Yes HMRC have stated that only the replacement of built-in appliances count as a revenue deduction for an unfurnished letting as they accept that this is a repair to the property as a whole.

Mind you they do refer to "fitted" appliances.

I don't know what makes a washing machine "fitted" though. Perhaps you only have to stick a cupboard door on the front of it?

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The triggle is a distant cousin of the squonk (pictured)
By Triggle
01st Aug 2014 22:06

I think what they are trying to suggest by their current performance of dancing on the head of a pin Basil is that in order to claim a replacement appliance as a repair it has to be an integrated appliance not just fitted as in delivered and plumbed in.

An integrated appliance would be one where there's a dedicated void for the appliance to fit into perhaps beneath a worktop and where the appliance does not have a normal front but, using a fitting kit, a door that matches the rest of the kitchen units can be attached.

Who knows really?

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By SE_Confused
02nd Aug 2014 10:17

thank you all

trying to understand why they came up with the rule, perhaps too many landlords were buying fridges for themselves and then putting them thru the expenses?

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By JimH
02nd Aug 2014 19:49

Draft guidance and the latest ...
Buying a free-standing washing machine is capital expenditure on a new asset. But because it is used in a dwelling house it does not qualify for capital allowances purposes.

Being freestanding and removable, it is plant. Unfortunately, HMRC have finally confirmed that free-standing white goods do not qualify as a trade tool, typically small utensils, ladders etc (Section 68 ITTOIA 2005/Section 68 CTA 2009 )

But potentially replacing a fitted integrated washing machine in a fitted kitchen / utility may get a deduction under replacing a fixed fixture.

See Sophia example in revised draft guidance from HMRC http://www.hmrc.gov.uk/briefs/income-tax/draft-guidance.pdf. Anyone know if guidance has yet been updated?

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By JimH
02nd Aug 2014 20:10

cheers Basil

...always enjoy your detailed analysis. 

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By Steve Kesby
03rd Aug 2014 11:39

Because I know you're interested Basil

@ Basil I don't think your [ii] can carry any weight. I think your [i] is the correct point.

My views on s. 68 correspond with yours, but those views don't correspond with HMRC's. I thought that had been done to death already though.

@JimH Before I go on, let me deal with your point on the draft guidance. This has already been incorporated in HMRC's Business Income Manual at BIM46900 onwards (Since the 10 December 2013 rewrite).

The Sophia example (and other bits that were useful, relating to the replacement of boilers) didn't make it into the final edit though, which HMRC said in their response to the ICAEW/CIOT was due to "a technical error".

Getting back to Basil's arguments though, the "fitted" point arises from HMRC's view that things which are fixtures are, when replaced, a repair to the entirety of the building.

The replacement of things which aren't fixtures are themselves a replacement of an entirety.

So the reason that "fitted" appliances are permissible in HMRC's eyes is because they are integrated in a fitted kitchen, and replacing any part of the fitted kitchen is a repair to the entirety of the house.

Connecting something to the mains services isn't enough to make it a fixture of itself. Only when its an integral part of the fitted kitchen do HMRC consider it a fixture.

There were, according to HMRC, three available bases to relieve capital expenditure in a residential rental business:

the wear and tear allowance (concession abolished and now statutory, but it obviously only applies to furnished lets),the statutory renewals basis (s. 68, that HMRC says in BIM46980 only applies to "a narrow range" of items), andthe mythical non-statutory renewals basis (which was never actually contained in any concession, but the concession was apparently abolished nonetheless).

HMRC's views on s. 68 (in both ITTOIA 2005 and CTA 2009) are set out in BIM46960.

This view on the "narrow range" of application comes from the case of Hyam v CIR 14 TC 479 (a decision from the lower chamber of the Scottish Court of Session, equivalent to an English High Court decision in stature).

Hyam claimed a renewals allowance for shop fittings on moving from one shop to another, purchasing new fittings for the new shop,having also sold off the old ones.

The legislation under which Hyam was decided permitted the deduction for expenditure on the "supply, repairs or alterations of any implements, utensils or articles of the trade", but only to the extent of "the sum usually expended for those purposes according to an average of three years preceding the year of assessment".

The word supply is interpreted, in its archaic form, to mean replacement, rather than original supply.

The Inspector at the original General Commissioners meeting had conceded that the shop fittings were "implements, utensils or articles of the trade", but the Court of Session found for the Inland Revenue on the basis that:

the expenditure was capital expenditure, andthe requirement for usual expenditure over a three year average, indicated a requirement for normalcy of the expenditure, narrowing the scope of the permitted deduction.

Now, it having been accepted that the expenditure was on "implements, utensils or articles of the trade", and, given that s. 68 does now expressly say that it relieves expenditure that would otherwise be considered to be capital and no longer requires a pattern of usual expenditure averaged over a period of three years, HMRC do rather seem to be pinning their colours on completely the wrong mast.

It's also worth noting that there was a second leg of the Inland Revenue's argument in Hyam v CIR (to prevent a deduction given at the time for wear and tear of plant). So it was acknowledged that the "implements, utensils or articles" and the "plant" of a business are one and the same thing.

In HMRC's response to the ICAEW/CIOT they said that carpet expenditure wouldn't normally be within s. 68, because it's capital. A deduction for capital expenditure is expressly permitted by s. 68 and carpets were considered to be "implements, utensils or articles" by Lord Justice Salmon in Odeon Associated Theatres v Jones 48 TC 257 (a Court of Appeal decision, superior to a decision of the lower chamber of the Court of Session).

What else has been considered to be "implements, utensils or articles of the trade", I hear you ask Basil. Well in Caledonian Railway Company v Banks 1 TC 487, railway rolling stock was considered to be "implements, utensils or articles of the trade", limited of course, "to the sum usually expended...according to an average of three years..."

It's also worth noting that TCGA 1992, s. 41 restricts capital losses where renewals allowances, as defined in s. 41(5) (to essentially mean a claim under s. 68 for a renewal), have been given. Now you'd only do that if you contemplated that renewals allowances might apply to a chattel that originally cost more than £6,000 (otherwise there could be no loss because the chattels exemption rules deem the sale proceeds to be £6,000).

So I agree with you that s. 68 undoubtedly doesn't apply to the narrow range that HMRC say it does, and I don't think there ever was such a thing as a non-statutory renewals basis. It's always been in the statute, but the statue has become less restrictive along the way.

However, for the typical lettings client, practitioners are going to have to go along with HMRC's view. A different view could only be substituted where it is intended to take the matter to tribunal, which isn't generally going to be worth it for the sake of a washing machine or two.

Oops! Apologies for the length.

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By Steve Kesby
03rd Aug 2014 15:17

@ Basil

The problem is who pays to take this to tribunal? the client that's just bough two £250 washing machines, where the tax at stake is £200?

My "practitioners .. have to go along with HMRC's view", was qualified by the preceding "for the typical lettings client".

It would be nice to see the matter resolved to the taxpayers' favour. Personally I wish that the ICAEW and CIOT hadn't put the question to HMRC. At least then, oblivious to a set view from HMRC, we could have made the claim.

If you make the claim now that HMRC have extolled their view (by invitation), and you aren't prepared to take it to tribunal, you will next be accused of failing to take reasonable care.

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Replying to Tax Dragon:
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By nogammonsinanundoubledgame
19th Aug 2014 05:57

insurance cover?

Steve Kesby wrote:

The problem is who pays to take this to tribunal? the client that's just bough two £250 washing machines, where the tax at stake is £200?

My "practitioners .. have to go along with HMRC's view", was qualified by the preceding "for the typical lettings client".

I agree that the decision is one that must be taken by the client, on an informed basis.

I also agree that such clients would opt to forego the relief, even if we informed them that (a) in our opinion the law was on our side and (b) the professional fees would be covered be fee protection insurance.

But better check that the fee protection insurance WOULD cover it.  Anyone checked that out?  Obv potentially varies by supplier.

With kind regards

Clint Westwood

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By King_Maker
03rd Aug 2014 22:55

FWIW, I am in the camp of HMRC are wrong on their interpretation of section 68.

But I would leave it to the client to decide to go the Tribunal, if challenged by HMRC.

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Replying to mrme89:
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By nogammonsinanundoubledgame
19th Aug 2014 06:00

decision time

King_Maker wrote:

FWIW, I am in the camp of HMRC are wrong on their interpretation of section 68.

But I would leave it to the client to decide to go the Tribunal, if challenged by HMRC.

Client should be making that decision before entering the claim; not at point of challenge.

Also voluntary additional white space disclosure is to be considered.

With kind regards

Clint Westwood.

 

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By User deleted
04th Aug 2014 06:42

Another vote against HMRC view - BIM46960 says:

A deduction in computing the profits of a trade is allowed for expenses incurred on the replacement or alteration of small assets in certain limited circumstances where the expenditure would otherwise be disallowed as capital

What are small assets?? The legislation doesn't say that!!!!

 

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By Taxboss
18th Aug 2014 17:17

Redacted content

In the original ICAEW Technical Release - Taxguide 04/14 (TECH 08/14TAX) which reproduced the HMRC response letter dated 7 April 2014 there was a sentence on page 12 just before the paragraph headed "Wear & Tear (10% Statutory Allowance) which read:

"I have enclosed a separate document that will tell you more about our view on section 68"

That sentence has now disappeared from the website. Does anyone know anything about this  mysterious redaction!     

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By King_Maker
21st Aug 2014 15:18

@ Clint Eastwood :

I disagree. If you don't claim, then the deduction cannot be given.

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