We have been engaged by a client to undertake capital allowances claims on two furnished holiday lettings. The client has spoken to their accountant who has advised them to go ahead but I have a few concerns which I may want to raise with the client or accountant as I am not sure of the extent to which they are going to benefit from our work.
The facts of the case are the client has a profitable limited company but the furnished holiday lettings are only part of that company i.e. the company derives most of its income from a farm. We are being engaged to undertake claims on two properties built from barns in their financial year 2012/13 but they have other fhl's which have been in operation since the early 90s. The reason we are being asked to undertake claims on the two properties they developed in 2012/13 is becasue they met the new qualifying criteria while the others may not have done so.
My thoughts or questions are as follows:-
i) My understanding is that the FHL business income and expenditure needs to be ring fenced and any capital allowances claimed need to be used only against profits generated by the that business and not used for relief against the farms profits even though they are part of the same limited company. Is this correct?
ii) Where you run an fhl business can you elect to have properties where you only claim wear and tear allowances on some because they don't meet the qualifying criteria and capital allowances on others where they do meet the qualifying criteria? I know you are able to aggregate letting periods etc across all the properties to reach the average to see if all properties meet the qualifying criteria but do you have do do this ie.all properties either qualify or fail based on these averages.
Based on the engagement letter the client has signed we could just do the claim and not worry about the above but we are not that kind of company and only want good outcomes and happy clients.