VAT and tax relief on log cabin

VAT and tax relief on log cabin

Didn't find your answer?

I have a client who is a pattern cutter and has recently installed a log cabin in her garden to work from.She was working from her home previously but now wants her house back! She only has a turnover of 30k p.a. but has been vat registered for many years and she has claimed all the vat back on this log cabin.Is this correct and if so should I claim the whole purchase as AIA, capital allowances or as an expense in the accounts or should I take a portion for private use.I know this can be a bit of a grey area with HMRC.

Replies (35)

Please login or register to join the discussion.

avatar
By chicken farmer
10th May 2014 18:23

Yes and No
VAT reclaim OK but no capital allowances - its not plant

Thanks (0)
Replying to Justin Bryant:
By tebthereb
10th May 2014 23:09

No capital allowances?

chicken farmer wrote:
VAT reclaim OK but no capital allowances - its not plant

Surely there would be at least some plant and machinery upon which capital allowances could be claimed.

Integral features like lighting etc.

Thanks (0)
avatar
By Swampy
10th May 2014 19:33

Should I claim it as an expense in the accounts then and if so under what?

Thanks (0)
Replying to andy.partridge:
RLI
By lionofludesch
11th May 2014 08:51

Not an expense

Swampy wrote:
Should I claim it as an expense in the accounts then and if so under what?

No. It's capital. 

There may be some minimal plant included in there but the only tax relief you're going to get is Capital Gains Tax Acquisition costs when she sells it.

Thanks (0)
By tebthereb
11th May 2014 09:06

Minimal?

Not a surveyor myself but I would have thought something like up to 25% of the cost might qualify? Hard to say without greater possession of the facts.

Even if it was as little as 10%, if this cabin cost, say, £15k that is still £1.5k that could be written off against profits in the year of the spend, which for a pattern cutter working out of her back yard could be a decent result.

OP - looking back at your opening comment I don't follow the question about private use. Is there private use of this cabin then or is it just "to work from" as you first suggested?

Thanks (0)
Replying to Tom 7000:
RLI
By lionofludesch
11th May 2014 09:14

Exactly

tebthereb wrote:

Hard to say without greater possession of the facts.

Quite.

Thanks (0)
The triggle is a distant cousin of the squonk (pictured)
By Triggle
11th May 2014 10:09

Just a thought, but I could be wrong:

If the cabin is moveable (i.e. is not permanently fixed to the land but is free standing on, say, a concrete base) then would that make it a chattel - so chattels exemption would apply.

What's more, if the cabin has an expected economic life of less than 50 years that would make it a wasting asset and, therefore, potentially CGT exempt.

Usually, if an asset is a wasting asset but is used in a trade or profession then a chareable gain could arise on disposal but only if capital allowances could have been claimed on it (whether CAs were actually claimed being a moot point).

Since you can't claim CAs on the cabin this would mean that the cabin is still a wasting asset and thus CGT exempt?

I agree that there may be a claim for integral features (electricity supply, water supply, thermal insulation including double glazing etc,) included in the contstruction costs of the cabin and also for other internal features (such as free standing desks, worktops, shelves etc.) where the removal of such items would not result in the cabin collapsing (i.e. not part of its basic structure)..

The reason for my uncertainty is whether the cabin is moveable or whether it could reasonably be presumed that the cabin has an expected economic life of less than 50 years.

Any views on this?

 

 

Thanks (0)
avatar
By Swampy
11th May 2014 11:14

The log cabin was only put in her garden to work from and is only a small one costing just under 5k.Only said about private use as obviously it now forms part of her home that she owns.It is free standing on a concrete base.Knew this was a bit of a grey area but with more and more people working this way I better find out what's right!

Thanks (0)
Replying to lionofludesch:
By tebthereb
11th May 2014 17:13

Moveable?

Swampy wrote:
The log cabin was only put in her garden to work from and is only a small one costing just under 5k.Only said about private use as obviously it now forms part of her home that she owns.It is free standing on a concrete base.Knew this was a bit of a grey area but with more and more people working this way I better find out what's right!

Does "free standing on a concrete base" mean it is moveable?

Thanks (0)
By Marion Hayes
11th May 2014 12:32

Confused

Oxford English Dictionary says the definition of a buiding is A structure with a roof and walls 

Capital allowance manual says

CAA01/S281

A commercial building is a building that is used for the purposes of a trade, profession or vocation. A building used as an office is also a commercial building. 

 

Why would you think that this could be a chattel? or a wasting asset

 

Thanks (0)
By Steve Kesby
11th May 2014 13:30

I'm not sure why...

... it satisfying the OED definition of a building excludes it, necessarily, from being a chattel or a wasting asset.

From a legal point of view a chattel is any tangible personal property, as opposed to real property. It's real property if it is land or is permanently attached to land. The concrete base is real property, but the same isn't necessarily true of the log cabin.

Whether or not it satisfies the definition of building for the purposes of excluding it from capital allowances, if it isn't permanently attached to land it's tangible moveable (personal) property.

If it's got a life of less than 50 years (as short leases have, for example) it's a wasting asset, irrespective of whether it's personal property or real property.

If it's personal property, then it's useful life may not be of relevance given the value involved (ie a new one would cost you £5,000). So, I think Triggle may have a point on the CGT in relation to the log cabin itself.

Nonetheless, there will be a part of the garden (that the cabin and it's concrete base now occupy) that may be used exclusively for business purpose during the occupation of the main residence, when it comes to be sold. Sounds like a good place for the kids to go and do their homework?

I agree though that there would be no CAs other than on integral features and other fixtures and fittings.

Thanks (0)
By Marion Hayes
11th May 2014 13:58

@Steve

Morning

Thanks for your input.

My reaction was because I would have automatically classed it as a building, not considered capital allowances apart from kitting it out, and looked to Capial Gains consequences not Revenue.

I would have leaned further towards talking to the client to occupying it for mainly private use in order to see if it could qualify in the long run for PPR so Chattels was an unexpected turn. We have a few log cabin based buildings around here which are very substantial, and I think have a life expectancy of more than 50 years. class them as wasting assets - it would depend on the brochure spec for support for that one I think.

I shall  have to do more reading I think

 

Edit  : there is text showing I deleted and can't see in the edit screen about wasting assets

Help Henry please

Thanks (0)
By Marion Hayes
11th May 2014 14:00

clarify above

The line ........class them as wasting assets....  to .......I think

should not be there

Thanks (0)
avatar
By Swampy
11th May 2014 17:31

I believe so although in the real world lets face it,it ain't going anywhere!

Thanks (0)
RLI
By lionofludesch
12th May 2014 09:43

Agree with Marion

Whether or not it's a building in the OED definition, it's the setting in which the trade is carried on.

Surely ........

Thanks (0)
By Steve Kesby
12th May 2014 10:39

@ lion

I think everybody agrees that it's a building and the setting in which the trade is carried on meaning that it isn't eligible for CAs (other than in respect of integral features, fixtures and fittings).

The point was that whether or not it's a building or the setting in which the trade is carried on has no relevance to the CGT position if the log cabin is sold. It's possible that it might be a chattel and a wasting asset for CGT purposes, meaning that such a sale would be exempt from CGT. It's also possible though that it would be neither.

I'm not necessarily disagreeing with Marion, as such, but simply pointing out that Triggle's point is also not necessarily incorrect.

Thanks (0)
avatar
By Swampy
12th May 2014 11:06

So to sum up,can't claim it as an expense in the accounts or use it for capital allowances but is ok to claim the Vat back on?

Thanks (0)
avatar
By SIMPLETON
13th May 2014 06:05

LOG CABIN VAT

In your original posting you said that VAT had already been claimed back.

The fact that VAT can and has been claimed back,suggests that the VAT office are not treating

it as a building as such.This is because some types of log cabins have VAT added to the net

price, because,in the eyes of HMRC,they are being classed as a garden addition.

As this is the case,they may qualify for Annual Investment Allowance,as the person has incurred

capital expenditure on the provision of plant that is used wholly or partly in the business.

The definition of plant is equipment that is used in carrying out an industrial business. 

Thanks (0)
avatar
By Swampy
13th May 2014 06:59

VAT has only been claimed back as the client prepares her own Vat returns and assumed that as the cabin is used for business that she could claim it back on her return which is what she did a few months ago.She did not consult the vat office regarding this.Come to light as I am now preparing her accounts for the year.

Thanks (0)
avatar
By SIMPLETON
13th May 2014 10:01

VAT CLAIMED BACK

 The fact that the cabin had VAT charged on it,in the first place suggests that it is being

treated as a garden addition and not as a new building (for VAT purposes anyway). Have you

had sight of the original invoice,to ascertain exactly how it was described on the invoice and

also was VAT charged at 5% or 20%?

Thanks (0)
RLI
By lionofludesch
13th May 2014 10:17

VAT

If it's used wholly for business, I don't see why she can't claim the VAT.  If it was a real, proper, bricksandmortar building, nobody would have even thought reclaiming VAT was an issue.

Thanks (0)
avatar
By Swampy
13th May 2014 11:25

Vat was charged at the full 20% rate.Invoice description is as follows:

1 Radley Corner Cabin 5m x 3m 130mm Dualtherm DG

1 Black Shingles for Severn 400 Plus & etc

1 Roof Membrane for Avon 500 & etc

1 Installation

Thanks (0)
avatar
By SIMPLETON
13th May 2014 11:49

VAT CHARGED

My own thoughts are -

 It was perfectly,in order to have claimed the Vat back.

 It would be classed as  plant and as there has been capital expenditure on plant,you can

claim Annual Investment Allowance on the net amount before VAT.
 

Thanks (0)
Replying to Duggimon:
RLI
By lionofludesch
13th May 2014 13:16

Plant?

SIMPLETON wrote:

My own thoughts are -

 It was perfectly,in order to have claimed the Vat back.

 It would be classed as  plant and as there has been capital expenditure on plant,you can

claim Annual Investment Allowance on the net amount before VAT.

How do you come to the conclusion that it's plant ?

 

Thanks (0)
Replying to lionofludesch:
avatar
By SIMPLETON
13th May 2014 14:05

RE PLANT/LOG CABIN

  HMRC VAT,in the case of smaller log cabins,do not class them as buildings,they are classed as garden additions/equipment and as such charge VAT on them.

 The larger log cabins are classed as buildings  and do not have VAT charged on them.

 Because of this classication and the fact that there has been capital expenditure on an asset which is expected to last for more than two years and is

used to carry out the trade and is not for resale, is the reason for this to be plant. Your comments would be appreciated.

  

Thanks (0)
Replying to lionofludesch:
RLI
By lionofludesch
13th May 2014 15:18

Agree

SIMPLETON wrote:

  HMRC VAT,in the case of smaller log cabins,do not class them as buildings,they are classed as garden additions/equipment and as such charge VAT on them.

 The larger log cabins are classed as buildings  and do not have VAT charged on them.

 Because of this classication and the fact that there has been capital expenditure on an asset which is expected to last for more than two years and is

used to carry out the trade and is not for resale, is the reason for this to be plant. Your comments would be appreciated.

  

Afraid the VAT and Capital Allowance rules just aren't the same.  If you're going to base your Capital Allowance claim on the fact that the VAT's deductible, you're doomed to failure.

Thanks (0)
avatar
By Swampy
13th May 2014 12:06

That was my thinking from the start although I haven't yet committed fully to this by telling the client yet,better get it right!

Thanks (0)
The triggle is a distant cousin of the squonk (pictured)
By Triggle
13th May 2014 12:24

Hi Swampy

Leaving aside my esoteric (and not particularly relevant to your problem) point re the chattels treatement (which I would only use as an argument if the amount involved was material and the client was happy to take the risk) as regards claiming AIA on the purchase of the cabin then the answer is no.

See:

http://www.hmrc.gov.uk/manuals/camanual/ca22110.htm

The relevant case is St. John's School (Mountford and Knibbs) v Ward (Inspector of Taxes).

Thanks (0)
avatar
By Swampy
13th May 2014 12:35

Thanks for that.So unfortunately definitely not capital allowances or AIA. In which case was she correct in claiming the Vat back?

Thanks (0)
The triggle is a distant cousin of the squonk (pictured)
By Triggle
13th May 2014 12:45

I would say that she can.

If there is a private use element of the cabin then the VAT claimed should have been reduced  on a fair and reasonable basis to reflect that private use.

I am asuming here that she operates as a sole trader and not through a limited company and that she is not on the VAT flat rate scheme.

Thanks (0)
avatar
By Swampy
13th May 2014 12:57

Yep sole trader with standard vat not flat rate.I have also noticed that she bought a sofa for 2k plus the vat to go in it and has claimed all the vat on that as well although I believe she is ok for that as part of the fixtures and fittings

Thanks (0)
The triggle is a distant cousin of the squonk (pictured)
By Triggle
13th May 2014 13:01

Yes, but make sure when you go round to visit that the sofa's in the cabin!

Thanks (0)
Replying to lionofludesch:
avatar
By Swampy
13th May 2014 13:30

Sofa

Triggle wrote:

Yes, but make sure when you go round to visit that the sofa's in the cabin!


Well of course,goes without saying :)
Thanks (0)
avatar
By tonycourt
13th May 2014 15:11

Mixing VAT and CA rules

@ SIMPLETON

My comment is that the VAT position for any structure has no bearing on whether an asset qualifies for CAs. 

CAs are not available for land or buildings from which trade is carried on. Masses of case law confirming that position for large, small, permanent and temporary structures - see earlier posts above.

Thanks (0)
By Steve Kesby
13th May 2014 15:28

I'd have thought...

... that these things were pre-fabricated and assembled on site, meaning that the supply is a supply of services, such that it's a standard-rated supply, regardless of size, in any event.

Thanks (1)