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Ltd Co aborted yard development costs

Ltd Co aborted yard development costs

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Hello,

I have a Ltd Co sole director/shareholder client who had planned to develop a yard and office at his private residence (rented).

An agreement was made between my client (as an individual) and his landlord (relative) confirming that he could sub let part of the land to his company to develop. A rental licence was put in place between my client and the company although no rent has been paid.

The company incurred initial groundwork costs of £10k (no VAT charged/claimed) to prepare the yard for several vans and there was some sort of issue with a neighbours boundary wall which is ongoing and has prevented any progress and is possibly going legal. It seems that my clients landlord (a relative) and the neighbour are dealing with this between them.

My client has decided not to prgress with the project and has found premises elsewhere.

My understanding is that the yard costs would have been capitalised if the project was completed but no capital allowances would have been available. Is it now a case of writing this off through the P & L and adding it back in the tax comp as abortive expenditure (ECC Quarries Ltd v Watkis)?

 This was a genuine project that has gone wrong. 

Is there a risk that HMRC may treat these costs as anything other than company expenditure?

My client has a directors loan account which could absorb this if neccessary.

 

 

 

 

 

 

Replies (7)

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By Tax Dragon
18th Feb 2020 10:39

Sounds like company expenditure to me. Why should a director pay the company's costs? Doesn't that generate taxable income for the company (in this case with no compensating deduction)?

Your question should really be about possible benefits in kind or distributions.

Thanks (1)
Replying to Tax Dragon:
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By CWservices6064
18th Feb 2020 14:04

I've had an update on this today. The dispute with the neighbour is being dealt with between the property owners (my client's landlord who is a relative) on the advice of solicitors.

The site is to be restored to it's previous state (as though nothing happened) and my client's company will pursue the builder they engaged for costs they have incurred.

Thanks (0)
Replying to CWservices6064:
Hallerud at Easter
By DJKL
18th Feb 2020 14:18

No idea where the builder fits into this and why he/she is the fall guy.

If your client is not familiar with construction litigation this could well be a real eye opener for them;

" Any writ you can raise I can raise bigger
I can raise any writ bigger than you
No you can't , yes I can......."

Good luck to them.

Thanks (1)
Replying to CWservices6064:
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By JoF
18th Feb 2020 15:45

Im interest too - what has the builder done wrong?

Thanks (0)
Replying to JoF:
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By CWservices6064
18th Feb 2020 17:21

Hi,

Sorry, I wasn't clear in my original post.

The builder who did the initial groundwork for the yard caused a 'small' landslide as the neighbours land is on a slightly different level. His yard work caused a partial collapse of the existing retaining wall...........

Thanks (0)
Replying to CWservices6064:
Hallerud at Easter
By DJKL
18th Feb 2020 17:26

Well, who instructed the work and who employed an engineer to check before work started? Was the builder detailed in the contract to do this or was he just pointed at the work and asked to perform- depending on the form of instruction from your client maybe the builder has a claim against your clients for lost profits, idle labour standing by due to your client's negligence in not engaging an engineer.etc.

Thanks (1)
Replying to Tax Dragon:
avatar
By CWservices6064
18th Feb 2020 14:04

I've had an update on this today. The dispute with the neighbour is being dealt with between the property owners (my client's landlord who is a relative) on the advice of solicitors.

The site is to be restored to it's previous state (as though nothing happened) and my client's company will pursue the builder they engaged for costs they have incurred.

Thanks (0)
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