New personal client being investigated by HMRC for failure to disclose two residential lettings. I am currently preparing the income & expenditure accounts for the last 4 years for HMRC to scrutinise. Client has personally done plenty of repair work himself during the duration of the lettings (saving himself a small fortune in repair costs) and has passed the following through his books (most expenses are each less than £15):
Angle grinder (£20)
Circular saw (£30)
Drill bits (5 separate purchases of low value)
Drill hole gauge
Filling knife & wood scraper
Gardening tools
Hacksaw
Impact driver (£30)
Joint knife
Joint pliers
Kneeling mat (for low/floor repair work)
Ladder for painting (£30)
Paint brushes
Paint brush & pole (£10)
Paint edging roller (£15)
Radiator bleeding key
Pliers
Protective gloves for metal paint
Saw
Screwdriver (£25)
Screw organiser (£20)
Stanley knife
Tape measure (£10)
Wrecking bar for carpet etc. removal
External solar lights & replacement solar lights
I am tempted to disallow most of the above expenses apart from paint brushes, protective gloves and solar lights. However, the reality is that client would have paid lots more repair costs had he got a tradesman in to do the work.
It all seems unfair, but the new Replacement Domestic Items Relief seems to hammer the "Small Tools" allowance on the head.
I suspect client may be retaining most of the small tools for future work, but I need to ask him first.
Does anyone have any alternative views on this matter. Is there an element of subjectivity about all of this, or is it all a black and white issue.
Remember that HMRC will end up with full details of all client's expenses in this particular case!
Replies (40)
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If mine, I would let client know my opinion and claim what he wants
I always claim some management cost unless agent did it all
Would he be better off claiming miles?
https://www.youtube.com/watch?v=gi_6SaqVQSw
our younger readers may appreciate the above.
watch to the end.
If the HMRC officer has a sense of humour he /she may allow the minor equipment items.
My father-in - law made me watch this on Christmas day! , I felt very proud that I understood your 'four candles' post.
I also had to watch Laurel and Hardy taking a piano up steps about 100 times and failing miserably.
And then he said he's going to put the 'two Ronnie's' on 'for me', but luckily the whiskey took its toll, just in time.
Pheeeww.
Laurel and Hardy
Another Fine mess!
Yes
The piano scene is required viewing.
But also
Well worth watching.
With a whisky or whiskey... there is a difference
Apparently this sketch is an annual must view in Germany at Xmas
Extending the question slightly, if he had 100 properties and employed a full time handyman under PAYE, and to enable said handyman to do his job provided a complete van full of tools and also provided the van and its running costs , employer liability insurance, contractor liability insurance and had a permanent skip in use, would opinions differ? Because we did this for years( I have a storeroom full of these tools in case we decide to revert to the employed model in the future)
Sorry to be controversial, but I'd be tempted allow all of them. I do most DIY and repairs in my own home, and every task requires a pile of random stuff from B&Q.
Fitting my own bathroom required about £300 of random tools that I didn't foresee at the outset.
A lot of the items you mention are highly consumable and may well already be gubbed if, as you say, he's done a lot of work himself - especially drill bits and brushes. Many other items will be useful for ongoing maintenance of the property, such as radiator bleeding keys, the ladder and the tape measure. Perhaps, as you say, get him to confirm he'll use them for his rental property going forward.
They're all just costs of maintaining his rental property.
I'd also allow as repair costs if they are just small items- if you are disclosing to HMRC then they'll disallow if they don't agree, but if you don't ask then you won't get. As someone else said you can explain "risk" to client and up to them.
(Hubby does lots DIY - drill bits break, paint rollers clog, trowels etc get filler hardened on them - a lot of these probably get chucked within the year)
If one say uses cheap paint brushes it is actually cheaper to use once and bin rather than pay an employee to clean the brush after each us (By once I mean one job, polly bag over bristles held by elastic band when not in use means can use for a few days without cleaning)
Again, the tax at stake is buttons.
What if he does use some of this stuff at home? It's actually far more likely that he'll use it for future property repairs.
If his activity were a self employed trade a collection of small tools would probably go into an asset pool, without further speculation, so why not here?. But of course the client should consider if there is any private use.
I'll throw this in for fun for the labour element .... if they are not otherwise self employed and haven't used it elsewhere could they pay themelves less than £1000, treat this as property expense and regard it as Trading Allowance for a casual trade of handyman?
I'll throw this in for fun for the labour element .... if they are not otherwise self employed and haven't used it elsewhere could they pay themelves less than £1000, treat this as property expense and regard it as Trading Allowance for a casual trade of handyman?
I vote no.
I also say no, this would be trading with oneself, something I have heard is sinful in the tax religion( someone will no doubt confirm why)
I also say no, this would be trading with oneself, something I have heard is sinful in the tax religion( someone will no doubt confirm why)
It's the legal religion, actually. You need at least two parties to a contract.
Correct. But there are two separate trades. Or maybe he has a wife who is handy with a stanley knife (lets call her Mrs Bobbitt)
..... and I have heard it makes you go blind, and if you did you wouldn't be safe using some of those tools
The legislation makes specific provision to restrict the use of the allowance against income from the individual's employer, the individual's partnership and the individual's own company. It doesn't need to mention restricting the allowance against income from the individual themselves as it can't happen.I'll throw this in for fun for the labour element .... if they are not otherwise self employed and haven't used it elsewhere could they pay themelves less than £1000, treat this as property expense and regard it as Trading Allowance for a casual trade of handyman?
Most of this stuff counts as repairs and maintenance as they are consumables rather than tools. The others will qualify for Annual Investment Allowance so long as they aren't kept in the let property. Strictly speaking there should be a % deduction for private use but for such low sums it's hardly worth it. Just make an appropriate disclosure in the additional info box. You should be safe then after a year. Unless, of course, you're using the Let Property Campaign, in which case you don't need to file tax returns or itemise anything. Just keep records of the calculations.
The replacements allowance is mainly for furnishings and household equipment like ironing boards and vacuum cleaners. Tools qualify too if kept in the let property so you have a second bite of the cherry there. Also kitchen appliances, although the big issue with them is whether they are free-standing (replacements) or built-in (repairs and maintenance). Either way, it makes a difference whether they are new features or not. If so, they are either improvements if built-in or disallowable if free standing.
To be honest, the whole replacements thing is a joke. Small landlords tend to say that everything is a replacement. There is no way of proving or disproving this unless they took pics, which could have been taken anywhere. I always advise new landlords to replace furnishings and household items after a letting starts, just to reinforce their claim. It is even worth moving old mattresses, etc, into a new property so the new ones count as replacements. Not that the taxman is ever going to quibble over it.
The other big issue with repairs & maintenance is whether the property had already been introduced to the letting business. This is much easier to claim if the landlord has existing lettings. For new landlords, you need to ascertain when they first decided to let the property. Sometimes you find it was advertised for sale, which rather gives the game away.
You also find sometimes that the landlord was still living there or using the place for storage. That means the property was not yet available for letting or it potentially doesn't qualify as a void between lettings, as it has to be wholly and exclusively for the trade. For a new landlord, you then need to decide if any of the expenses for that period qualify under the pre-trading rules. Council tax and utility bills certainly don't if they were still occupying the property. Nor do routine repairs and maintenance, as everyone has to do that. Only letting-related expenditure would qualify, such as gas checks or electrical testing. Anything else would be open to debate.
It can be a real minefield. I've just had to advise a client not to live in a previously let property while she spends months refurbishing it, at least not officially. She wanted to make it her temporary address! People don't understand. You can't just claim anything, no matter how reasonable it might seem to the man in the street. You have to follow the rules to the letter, however arcane they might seem.
Yes, all those items count for AIA, subject to the private use deduction. They must have been purchased during the tax year though and the claim must be made within the time limits, otherwise all the landlord can claim is annual WDA.
I have had a recent discussion re this with colleagues and was told I couldn't claim capital allowances regardless of inside or outside the home on residential property. I've googled and can't find the reference that I can claim, do you happen to know what it is please?
Not offhand no, I just happen to know it's true. General principles I'd say. I'm sure your firm has got its own tax advisors it can ask - for a fee.
I have had a recent discussion re this with colleagues and was told I couldn't claim capital allowances regardless of inside or outside the home on residential property. I've googled and can't find the reference that I can claim, do you happen to know what it is please?
This stuff isn't residential property.
It's tools.
Is there a difference as to whether it is treated as a business? I thought for it to be treated as a business more rules applied, such as going beyond normal landlord duties or am I reading much too much into it now?
I think you're right. I always interpreted that rule as excluding items "kept in" a dwelling house (which must include garden and grounds too so tools kept in a shed would also fall foul of this) but s35 says "for use in" so a carpet cleaner would fall foul even if the landlord keeps it at home. The same goes for vacuum cleaners, garden tools and small electricals for indoor use. However, there might be some leeway for tools used "on" a dwelling house, such as masonry drills, ladders and the angle grinder you listed in your OP.
By the way, it's wacky not whacky, as in the Wacky Races. As Penelope Pitstop, you should know that :-)
Correct. The £25k elevator would be an improvement deductible against CGT, assuming it was still reflected in the state or nature of the asset at disposal. It wouldn't qualify for AIA as an integral feature as it is contained wholly within a dwelling house. The £100k elevator would qualify for AIA however, as it is only for the common parts, not individual flats.
Same goes for kitchens and bathrooms within HMOs if they don't already qualify as repairs & maintenance, such as kitchen appliances or shower cabinets that weren't there before, provided they are for the use of more than one family unit.