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Is laminated flooring an improvement on carpets?

Is laminated flooring an improvement on carpets?

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A client today was disappointed to hear that he couldn't claim a new carpet against tax after the old one had been ruined by the outgoing tenants. I had to tell him it was covered by the wear and tear allowance.

He then came up with an interesting question. Could he claim for laminated flooring instead? It's fixed to the floor so it counts as a fixture, and replaces the old floor covering (the carpet) so can it be claimed as maintenance, or would it have to be treated as an improvement?

I told him laminated flooring was hardly an improvement on carpets so I would be inclined to claim it.

Am I right though? After all, it is a new feature, whether an improvement or not. If you replace something that is not tax deductible with something that is, would the old tax status over-ride the fact that it performs the same function (i.e. covers up the bare floorboards)?

By the way, he's planning to sell the house soon without letting it out again but I told him he could continue claiming maintenance, cleaning and utility bills against rent from his other lettings as it is all one business and he hasn't changed its use by moving in. Pretty sure I'm right on that, but any dissenters?

Comments awaited with bated breath.

Replies (15)

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Portia profile image
By Portia Nina Levin
27th Nov 2014 10:42

Before you get to "improvement"

You need to get past "like for like replacement". Replacing carpet with something completely different cannot be considered to be a "repair" to the entirety of the house.

Look in the dictionary! Repair means to restore a thing to its former condition.

You cannot restore something to its former condition by putting it in a condition that it was never formerly in.

Besides, carpets are not regarded as a fixture and so are not part of the entirety of the house, whilst laminated flooring is so regarded. So you have improved the entirety of the house, by fitting laminated flooring, instead of a bare floor.

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By cfield
27th Nov 2014 12:42

Using different materials

Portia Nina Levin wrote:

Replacing carpet with something completely different cannot be considered to be a "repair" to the entirety of the house.

Not sure I agree with you there Portia. There are plenty of examples where replacement of old items with different materials (mainly because they're more modern) is treated as maintenance rather than improvement, even if they happen to be very different materials. The classic example is double glazing, but they could also include plumbing, electrical components, boilers, stonework, tiling, even wallpaper.

I'll admit, replacing carpet with laminated flooring is more a matter of personal choice than the need to use modern materials, but it doesn't "improve" the property in either quality or quantity of living space. If anything, it lowers the quality of the house as you get cold feet if you walk barefoot on laminated flooring.

At the end of the day, all you are doing is using a different material for exactly the same purpose - covering up the bare floorboards. It is purely incidental that one material is excluded from relief (because it is covered by the wear and tear allowance) and the other isn't.

I've always considered it a bit strange that carpet should be defined as a furnishing anyway, as it is normally nailed to the floor and thus just as much of a fixture as the kitchen cupboards. Just because it's soft doesn't mean it's a furnishing. What about the underlay? You can hardly use that again. Lino and floor tiles qualify as maintenance if replaced, so I don't see why the carpet shouldn't.

Still, that seems to be the rule, so new carpets are disallowable for residential landlords, but I don't see why laminated flooring should be if it is merely replacing what was there before.

 

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By BKD
27th Nov 2014 11:54

Terminology?

I haven't looked closely at this, but are repairs to carpets actually excluded?

s308B(1)(b) refers to "furniture, furnishings and ...". That tells me that furniture and furnishings are separate things. What is a carpet? I would say that it is a furnishing rather than an item of furniture. The exclusion from relief under s308 - per s308C(2)(b)(ii) - refers only to furniture.

Just a thought.

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Portia profile image
By Portia Nina Levin
27th Nov 2014 12:10

Yes but

Carpets (and other furnishings, as well as furniture actually if you read the explanatory notes to sectio 308(1)(b)) fall under section 308C(2)(i).

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By BKD
27th Nov 2014 12:40

You need to help me here

Because I've looked at various explanatory notes and can't find anything that would bring carpets within s308C(2)(b)(i) - unless there is a presumption that a carpet falls to be treated as an implement, utensil or article. But the explanatory note to s68 would suggest that that section is not intended to include carpets as such items (the section title is also a bit of a giveaway - I would never consider a carpet to be a trade tool (nor indeed a tool of any description)).

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By BKD
27th Nov 2014 12:52

That's the point, cfield

Lifting up a carpet (not fixed to the building) and laying down laminated flooring (fixed to the building) is not a replacement.

If you want to use the modern day material argument I would suggest that this would apply where (disregarding the fact that a carpet is not in fact part of the building) a wool carpet is replaced with a more hard-wearing synthetic carpet. Or, stuck-down lino is replaced with laminated flooring. But the replacement of a non-fixture with a fixture is not a replacement.

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Hallerud at Easter
By DJKL
27th Nov 2014 13:05

Laminates., I've fitted a few, but then again....

BKD wrote:

Lifting up a carpet (not fixed to the building) and laying down laminated flooring (fixed to the building) is not a replacement.

If you want to use the modern day material argument I would suggest that this would apply where (disregarding the fact that a carpet is not in fact part of the building) a wool carpet is replaced with a more hard-wearing synthetic carpet. Or, stuck-down lino is replaced with laminated flooring. But the replacement of a non-fixture with a fixture is not a replacement.

Of course most laminate flooring is not fixed, it floats over its underlay being fixed piece by piece but usually not fixed to walls/floors (in fact if you did fix it it would buckle/shrink with temperature setting)

Yes, it often gets slid under skirtings (if you have an under cutter or remove them then rip and refix), but often it is just a quarter round beading attached to the skirting the disguises the edge and the floor is not attached to this with nails/glue/anything.. Laminate is no more fixed than carpet and if clic style can be (in theory) lifted and used again.

No idea re tax treatment just wanted, from my years of fitting the awful stuff round our house, to point out the actual method of installation.

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By BananaMan
27th Nov 2014 12:56

Semantics

Improvement is subjective.

 

Laminate is hideous.

 

Solid wood is an improvement.

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Portia profile image
By Portia Nina Levin
27th Nov 2014 13:11

Rewind BKD

Section 308C(2)(b)(ii) that you originally referred to as covering furniture, actually says that you cannot get a deduction under section 308(1)(b) for expenses incurred in connection with provision of the furniture.

If you start by reading the explanatory note to section 308(1)(b), you will see that it relates to the expenses of repairing and insuring the furniture, rather than replacing it.

So on your arguments, if a sofa is replaced, it is allowable.

Well, it is not, because it is not a fixture, and so not a repair to the property, and is capital in nature.

The same applies for the carpet (where an "entirety" is replaced).

Relief would only be available if it fell within section 68, which permits the deduction of capital expenditure, but that is precluded by section 308C(2)(b)(i).

Now, you know perfectly well that section 68 is included in the "trading income" sections of ITTOIA and takes its context there and is then imported into property businesses by section 272, where it should take a context in relation to property businesses, otherwise why import it?

You also know perfectly well that heading are only an aid to interpreting a statute and do not have any effect of their own.

Section 68 covers implements, utensils and articles used (when imported by section 272) for the purposes of the property business.

A carpet is such an article.

In the case of Odeon Associated Theatres v Jones, Lord Justice Salmon said of the expenditure incurred:

"For the same reasons I am equally satisfied that all the sums expended for repairs of the cinema occupied by Odeon or for the supply, repairs or alterations of any implements, utensils or articles for the purposes of Odeon's trade were actually expended for those purposes and therefore are not excluded"

You will never guess what most of the expenditure was on? It was on carpets.

And are carpets (which are not a fixture) a repair to the cinema? Or are they the supply of implements, utensils or articles used for the purposes of the cinema's trade?

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Portia profile image
By Portia Nina Levin
27th Nov 2014 13:13

Carpets v laminated flooring

The essential difference is that carpet is not regarded as a fixture (you can take it with you if you want to when you move), but laminate flooring is.

Replacing something that is not part of the building with something that is, is not a repair.

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By BKD
27th Nov 2014 14:15

Thanks, Portia

I'm not sure how you get to the conclusion that I thought that replacement of a sofa would be allowable? But that is by the by. And I never suggested that straightforward replacement of a carpet would be allowable - unless the replacement amounts to a repair (HMRC have accepted that the purpose of replacing a carpet that had been ruined by tenants was to effect a repair which could not practically be effected by any means other than replacement, and so was to be treated as a revenue repair). If you rewind to my original post, you will see that I specifically refer to a repair to a carpet.

As for s68, of course I'm aware of the relevance to property businesses (which is why I added the words in parentheses after "trade tool". Perhaps it would have been clearer if the additional words had been inserted immediately after "trade"?). But s68 affects only the replacement or alteration of relevant items and only where such expenditure would otherwise be non-allowable as capital. A repair to a carpet is not capital so s68 is not in point.

So, while repairs to furniture under s308 are excluded where W&T is claimed, I can't find anything that [strictly] precludes a deduction for repairs to furnishings. HMRC's guidance does set out what the W&T allowance is supposed to cover - including furnishings. Logically, if expenditure is denied as a result of claiming W&T, that exclusion ought to extend to furnishings (and equipment, which is also not referred to in the excluding provision). So I guess we're back to a purposive interpretation of the legislation. Meanwhile, I will allow my clients to continue to claim for repairs to white goods where the W&T is claimed. If HMRC want to challenge, I'll be waiting for them.

 

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By cfield
27th Nov 2014 14:15

New carpet allowable as a repair?

BKD wrote:

(HMRC have accepted that the purpose of replacing a carpet that had been ruined by tenants was to effect a repair which could not practically be effected by any means other than replacement, and so was to be treated as a revenue repair). 

That's intriguing BKD. I haven't come across that argument before, let alone the fact that HMRC accept it.

Is this one of your own cases where the inspector made a personal decision or is it official HMRC policy? If the latter, is there anything in their Manual about it?

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By cfield
27th Nov 2014 14:17

Looking at the bigger picture

OK, so laminated flooring is not a repair or a replacement, even though it replaces something that did exactly the same job. It may not even be a fixture if you accept the DJKL argument above, in which case it would be disallowable anyway the same as a new carpet would be.

Standing back a little, let's consider how we might treat a new kitchen, where you replace the units and flooring with modern materials but it is not a vast improvement on what was there before. Normally, you would aim to treat it all as repairs and maintenance in a letting business.

However, there might well be minor improvements that are incidental to the use of more modern materials. You might have replaced the lino with floor tiles or (if you were a bit of a masochist[***]) laminated flooring. The cupboards might be more spacious or nicer looking (there might even be a few extra ones). You might put in new electrical sockets or plumbing, or better lighting.

Unless you had spent a huge amount of money, I think the taxman would normally accept it all as repairs and maintenance. He wouldn't seek to treat part of it as an improvement. You wouldn't need to split the costs say 50/50 between capital and expenditure as you would for refurbishing an office block, for instance.

In the same way, I would argue that laminated flooring in the hall or dining room would probably sneak in through the cat-flap as maintenance so long as it didn't cost too much.

Now there's a  thought. What would a cat-flap be - improvement or maintenance? Depends who you are I suppose. The cat would probably consider it an improvement.

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By BKD
27th Nov 2014 14:25

One of ours

Admittedly in a case not involving W&T so not directly relevant to my question.

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By davidtorres
19th Feb 2015 07:07

whats the use of claiming? It will not work.So,its better to take a new carpet and apply it on your floor.You will get many such carpets in black if you want or also a brand new one.The money which you will give during claiming that much only it take to buy a new carpet.to know more you can visit to http://www.nourisonhospitality.com/site-map/commercial-rugs-manufacturer

 

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