Planning cost and design cost are tax deductible?

Planning cost and design cost are tax deductible?

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Hi there,

I will be grateful if anyone can help me understand the accounting headings and the tax treatment for the following expenses incurred by a company. This is the first year accounts and I am not sure if these are the revenue or capital expenses? The company incorporated in December 2018. Their activities are buying and selling of real estate and managing a rental portfolio of real estate. I believe all the activities are for the residential properties not commercial.

The client bought a property that has the planning permission issue with the parking space with the council. They intending to convert this property into flats and sell them. They incurred a lot of legal costs for the planning, design, survey, highway maintenance planning cost, etc.

I need to know if all of these costs go under 'Legal & professional cost' heading or capitalised? If capitalised, how do I do it?

Do I need to show the acquisition of the property they bought?

I would greatly appreciate your help.

Kind regards

 

 

Replies (8)

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boxfile
By spilly
20th Apr 2020 11:05

Sorry, too busy dealing with CJPS to answer - plus you have posted anonymously which should only be for sensitive issues.

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By March19
20th Apr 2020 11:12

Thank you. I am new to this I did not know about the posting anonymously.

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paddle steamer
By DJKL
20th Apr 2020 11:20

As client intending resale of eventual flats it goes into stock held for resale as do all the prof fees and the costs of purchase of the property. If costs become abortive (as often happens- changes of direction) you may need to reconsider your carrying these within stock

Stock do get reviewed at balance sheet date to lower of cost and NRV anyway, however notwithstanding this costs that lead nowhere do need eliminated from the balance sheet.

Given all the tax nasties inherent within playing about with property some pre planning of what is done, what entity does each activity, is really advisable; group etc structure set up/vat planning is imperative before the hole being dug gets too big.

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Replying to DJKL:
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By March19
20th Apr 2020 11:36

Thank you for your reply. Sorry to be a pain. I do not understand your reply

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Replying to March19:
paddle steamer
By DJKL
20th Apr 2020 12:04

Dr Stock
Cr Bank

If records are compiled using cashbook approach

or

Dr Stock
Cr Purchase Ledger

If using a Purchase Ledger

You post the costs re the site to the carrying cost of stock, you build up the costs within same, you release these costs to the P & L as and when you sell the flats that your client is going to create.

Something tells me you are (hopefully) not acting for a client, this is really really basic stuff, debits and credits and knowing that stock is carried at the lower of cost and Net Realisable Value (NRV).

What precisely do you not understand?

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Replying to DJKL:
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By March19
20th Apr 2020 12:58

Hi,

Thank you for your reply.
I do not understand how to treat this expense? What I understand from your reply is that I have to capitalised these expenses and only claim the relief when the flats are ready to sell. I am acting for this client but this is the first situation in which I have no experience.

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Replying to March19:
paddle steamer
By DJKL
20th Apr 2020 14:25

It is precisely how you deal with anything purchased in period but unsold at period end, how would you deal with a corner shop selling baked beans?

It is,I imagine, O Level accountancy.

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Replying to DJKL:
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By March19
23rd Apr 2020 15:55

Hi there,

Thank you for the explanation. As I am treating all the expenses as trading stock, I assume the purchase cost has to go to P & L as well? The client has invested half the cost and the rest is by the loan.

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