Company Expense or Employee Expense.

Establishing if posed question is company purchase or employee expense.

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Good Evening,

I'm wondering if someone can help with a question I was posed while bookkeeping.

Client is Company Director and Employee, they need to move their bag making workshop from their currently rented space as the lease is up and the site is closing. The idea is to move it to a dettached garage/building on their property, so the employee can work from home.

The problem being that the current electrics within the building have been deemed unsafe and not inline with current regulations for the purpose proposed (Not changed since house purchase) and can not support the machines that they use ( couple of industrial Sewing machines and leather machines)

The question was posed, if the Employee was to pay for the electrician themselves to carry out the repairs / essential work to bring inline with current regulations and made acceptable for them to be able to work from home, can they then claim the total cost from the Ltd company as an out of pocket expense? As the cost would not have been born if they didnt have to work from home?

As the Ltd. company doesnt own or rent the building i wasnt sure it could be a capital expense with AIA, or could this be simply placed as a revenue expense, say for example office equipement ( Cables, conduit etc.) and payment of bill from the electrician, and go on the books as such.

Side note, I was made aware if it does go down as a CE with AIA then the company would possibly not have the funds to cover the CT, ( just using easy figures, £1000 company proffit in bank account - £1000 cost of electrical = £0 in the bank but possibly showing £900 (asset split over 10 years) in the company profit account, drawing £171 CT but with £0 cash in the bank)

Whats your thoughts?

Can the employee pay for the work required to allow them to work from home, as i said, I wouldnt class this as a BIK as the employee had no plans to upgrade the current building set up untill required to do so, to WFH.

Can this be placed as a revenue expense?

If anyone has any suggestions that I can put back to them, that will help the company stay tax efficient, or give a good outcome that would be most welcome by me.

Replies (16)

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By Tax Dragon
17th Feb 2024 22:32

"I'm wondering if someone can help with a question I was posed while bookkeeping."

It's not really a bookkeeping question, is it? You should advise on what you know and bat stuff like this away.

Are they required to work from home, or choosing to?

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Replying to Tax Dragon:
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By Highlandsteve
17th Feb 2024 22:45

No, its not a bookkeeping question, I have said its not official advice I am giving to them, more an opinion to help.

I would say that they are required to work from home as there is going to be soon, no working space to work from, its difficult with the director also being an employee.

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Replying to Highlandsteve:
Stepurhan
By stepurhan
19th Feb 2024 08:53

Highlandsteve wrote:

No, its not a bookkeeping question, I have said its not official advice I am giving to them, more an opinion to help.

I would say that they are required to work from home as there is going to be soon, no working space to work from, its difficult with the director also being an employee.

If you are giving an opinion, you are almost certainly not helping.

Also the need to work from home should be a matter of fact. "I would say" is not going to cut it when the precise factual position changes the answer.

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By David Ex
17th Feb 2024 22:41

As TD suggests, if you’re not engaged to give tax advice and not qualified to do so, don’t even try.

I think you’re better to say its beyond your remit than say you’ve asked an anonymous internet forum. As a client, I know which approach I’d respect more.

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By FactChecker
17th Feb 2024 22:43

Too many assumptions necessary to hazard even the faintest of 'suggestions' (and note that if you or client actually want 'advice' - which would seem sensible - then you need a paid for professional, not a free public forum not designed to give specific advice).

But you should strip out the emotive presumptions ("the cost would not have been born if they didn't have to work from home?" makes it sound like they are being *forced* to WFH, whereas it's just one of many options - they rented before so could, in theory, do so again).
That would leave you able to focus on the facts (which aren't very clear as laid out here) - such as:
* Business is a Limited company? With single shareholder and one (same) Director?
* Business is a manufacturer of bags (currently based in rented premises)?
* Business owns sufficient assets to support that manufacturing?
* Business makes a profit? If so, after sufficient drawings to sustain Director?
* Client is aware of cost/complexity of installing a 3-phase power supply?
* Client is aware of potential liability to CGT when property is eventually sold?
* Local council would allow manufacturing within what is currently residential-only?
... these and many more should be understood before even considering proceeding.

But without a retained accountant to advise, why do you believe that the Employee can pay for the electrician to carry out the work (to their own property) and yet then go on to claim the total cost from the Ltd company (which does not own the property)?
There *are* ways of achieving the apparently desired end-result but, as the accountant will be able to explain, they may come with associated strings and/or costs that make that end-result less desirable.

EDIT: I should have kept it briefer ... starting before the other two but finishing later isn't a good look! But needless to say I agree with both of them.

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Replying to FactChecker:
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By Highlandsteve
17th Feb 2024 22:52

* Business is a Limited company? -Yes With single shareholder and one (same) Director? Yes
* Business is a manufacturer of bags (currently based in rented premises)? Yes
* Business owns sufficient assets to support that manufacturing? Yes
* Business makes a profit? If so, after sufficient drawings to sustain Director? - After paying Employee costs, marketing, materials etc, the business has less than £1000 profits left.
* Client is aware of cost/complexity of installing a 3-phase power supply? Single phase power supply needed, its something to do with the cabling in the current set up.
* Client is aware of potential liability to CGT when property is eventually sold? Yes
* Local council would allow manufacturing within what is currently residential-only? yes as its within an outbuilding on open land and insurances etc have been spoken with for the potential.

Seems like I should tell them to speak to someone else. But my personal thoughts ( Not disclosed to them yet) where it would be classed as repair and a RE, but i may be wrong.

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Replying to FactChecker:
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By Highlandsteve
17th Feb 2024 23:17

"why do you believe that the Employee can pay for the electrician to carry out the work (to their own property) and yet then go on to claim the total cost from the Ltd company (which does not own the property)?"

Honestly, I thought it would be covered as an expense as the requirement to work from home, as the director can set that the employee "Must" work from home, these are additional expenses that have been put on the employee, in order for their property to be able to work form home.

I also thought about the possibility of them creating a rental agreement, and part of the rental T&C would be the upgrade of the costs and the total would just by chance match the yearly rent for the small building.

I will agree, this is out of my zone, im not giving them advice on this matter, merely personal opinion, but as of now im asking more out of my own curiosity, to see if my understanding of things is where I thought it was. And if my now theoretical solutions are sound.

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Replying to FactChecker:
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By Highlandsteve
17th Feb 2024 23:17

Deleted due to duplicate.

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Replying to Highlandsteve:
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By FactChecker
17th Feb 2024 23:48

Not being unkind, but you're providing more and more evidence of why a potential 'solution' should be based on the advice of an accountant.

"the director can set that the employee "Must" work from home" ... well, strictly it's the employment contract that can make that a requirement; but ONLY where home has the necessary infrastructure. Employer may provide necessary 'tools', but that's of no use if property cannot be used to do the contracted work with those tools.
TBH I think you're confusing the WFH 'allowance' rules with an entirely different situation.

A rental agreement can be an option (but shouldn't be drawn up on a DiY basis) - and has loads of implications ... like your client paying tax on the rental income received from the company / like potential objections from whoever issued any mortgage on the property / and so on.

If I wasn't clear before ... I wasn't posing questions in the hope of getting answers here - more as indications of the sort of things your client may well be asked by an accountant.
Basically you need to be happy to learn off the back of the advice that your client gleans from an accountant - not the other way round. Happy learning.

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DougScott
By Dougscott
17th Feb 2024 23:26

I would tell your client that you are a bookkeeper and this question needs to be answered by your clients accountant, armed with all the facts.

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By DKB-Sheffield
18th Feb 2024 00:03

Genuine question...

Why is your client trading through a company if sole shareholder, sole director, sole employee, home-based, a fairly 'safe' industry (no huge litigation risk), only £1K profit, and no company (surplus) funds to pay <£200 CT???

There may be (or may have been) genuine (and good) reasons for this. However, your client may wish to discuss - with their accountant - whether this is still the best structure?! Self employment certainly seems to offer more possibilities in this scenario IMO!

Obviously your client may have big ideas for this company, or may be a higher/ additional-rate taxpayer (other sources). Conversely, your client may equally be naiive and think a company is the only way to go which is all too common.

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Replying to DKB-Sheffield:
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By FactChecker
18th Feb 2024 00:18

That was indeed the point behind a bunch of my 'clarification questions' ...

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Replying to DKB-Sheffield:
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By Highlandsteve
18th Feb 2024 10:03

They were trading as a sole trader, but a pre-contract requirement for a larger order was that the purchaser would only use Ltd. Companies and not sole traders.. their policy.. no idea why, so they took the step to become Ltd company doing much themselves and then me taking on the bookkeeping for them (H/W but only 1 is an employee)

The company makes £30k a year but after wages, advertisements, materials etc have been paid the company shows little retained profit.

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By Leywood
18th Feb 2024 00:15

Not sure your client would view anything you tell him is a ‘personal opinion’ given your position as an advisor.

He will assume it’s relevant advice, which as other have said you shouldn’t be giving as a bookkeeper rather than Accountant or Tax advisor.

Doing so likely to invalidate your PII and would leave you wide open to being sued with no cover being in place.

That’s ignoring your ethics, which dictate that you don’t do work beyond your capabilities.

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By Tax Dragon
18th Feb 2024 06:21

FactChecker wrote:

TBH I think you're confusing the WFH 'allowance' rules with an entirely different situation.

Correct. Even if someone can require themselves to work at/from home, I doubt such a requirement changes the tax analysis re the OP's questions.

The correct tax analyses have not been set out in this thread. I don't intend to 'remedy' that, as the OP seems determined to tell the client "what I'm about to say is not advice, may well not be correct, is provided outside of the terms of our contract, and is uninsured. But..." Sheer stupidity, imo - as Leywood said, "this is my opinion not advice" might work as a caveat in here, but won't afford the professional any protection out there.

But I will throw in a couple of points. If an employer provides something - anything - to an employee, then ITEPA always applies. Waving your arms around and saying "I don't think it's a BIK", as the OP did... no, no, no - look at ITEPA.

Taxation of tenancy arrangements comes under ITTOIA, which act makes specific provision in relation to upgrades of properties by tenants.

Lastly, it's possible that something could be taxable under both ITEPA and ITTOIA. You need to know how these possible charges interact.

PS: I'm aware that sometimes people take replies like this as... well, various words have been used, let's pick 'showboating'. No. I make no bones about this: I could not do the OP's work; I don't pretend I could. It's obvious to me OP couldn't do my work; I think they shouldn't pretend they could.

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By Highlandsteve
18th Feb 2024 10:05

I feel my reply should be,

This is a better question posed to John your accountant, I suggest booking an appointment this is outside of my area.

Rather than give an opinion that could be misinterpreted.

Thank you for the kind but stern responses.

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