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Pricey office chair.

Director has purchased an office chair for £900.

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Doing accounts for a limited company.  Director has purchased an office chair for £900.  Is this an allowable expense to the company and therefore entered into the accounts as such, or should it be put through the DLA?  Rules say he is entitled to £4 a week working from home.  Grey area, do I treat him as an employee in which case the company is obliged to provide a working enviroment, though I am uncomfortable with the price.  Or, as a director is it a double claim if the standard "Use of home" allowance is claimed.

Many thanks

Roy

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Scalloway Castle
By scalloway
24th Apr 2020 13:29

Does he have private use of the chair?

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By Matrix
24th Apr 2020 13:56

I don’t really see where the price comes into it.

If it was purchased by the Director as you say though then I wouldn’t put it through the company or reclaim VAT.

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By Matrix
24th Apr 2020 13:59

Oh and capital expenditure is not an allowable expense even if purchased by the company.

What is your role?

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Replying to Matrix:
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By Lutondata
24th Apr 2020 15:07

Rather confused here? Capital expenditure is not an allowable expense?? A computer? A desk? Or do you mean revenue expenditure? I tend to capitalise items over £500.

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Replying to Lutondata:
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By Matrix
24th Apr 2020 15:18

Yes I mean revenue expenditure, it was not clear what you meant.

I am being helpful BTW. If the company had paid for it then I would capitalise it and claim capital allowances. And reclaim the VAT. But you say that the Director bought it.

I do not have a problem with the amount if that is the crux of your post and I already said this.

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Replying to Matrix:
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By Lutondata
24th Apr 2020 16:01

Thanks Matrix. I do have a problem with the price.

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By ngaccounts
24th Apr 2020 14:45

Lots of problems here. Suspect the cost isn't likely to pass the wholly & exclusively test & an adjustment would need to be made for any personal use or would be taxed as a BIK. I personally might be inclined to ignore the double claim issue given his WFH allowance is only £4 pw.

PS directors are classed as employees. Im also assuming this is an SME.

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Replying to ngaccounts:
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By Lutondata
24th Apr 2020 15:13

Thanks NGaccounts, a little more helpful and constructive. Yes, its an SME. I couldn`t really see what an office chair could be used for on a personal level unless he`s some nutter gamer? I spend around 10 hours a day in mine and am very glad to escape it. I would be happy to defend an office chair as a genuine expense to the company. Its the fact that he has gone and spent £900 on one that makes me feel uncomfortable and we are asking the tax man to chip in 19% less CT as a result?

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Replying to Lutondata:
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By Matrix
24th Apr 2020 15:15

Has he or the company bought the chair though?

There is no private use adjustment for incorporated businesses.

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Replying to Matrix:
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By Lutondata
24th Apr 2020 15:44

He has purchased via the business account. I`m sorry, I should have been clearer.

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Replying to Lutondata:
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By Matrix
24th Apr 2020 15:56

OK well see my reply above, all good for me.

I was only being pedantic so I could answer.

I used to go to ICAEW events in Luton.

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Replying to Lutondata:
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By ngaccounts
24th Apr 2020 15:27

Yeah you're definitely right to question it.

Id probably say to him either he drops/reduces the claim to that of a typical home office chair (although not sure exactly how you'd determine that) & on assumption any private benefit is incidental.

Or you'll let it through but say you'll be forced to declare as a BIK to HMRC on assumption there must be some private benefit. If there's no business necessity to spend £900 on a chair then there has to, in theory, be some private motive.

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Replying to ngaccounts:
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By Lutondata
24th Apr 2020 15:57

Thanks NG. You seem to have grasped the point. Yes, I see a private motive where "Its a company expense, that's tax deductible" and no regard for what is seen as reasonable. For those of us that run our business`s from home its reasonable to have a decent chair. A good one is usually available for around £150. I`m happy to expense office equipment at normal prices. I really wanted to get some feedback on the matter.

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Replying to Lutondata:
Psycho
By Wilson Philips
24th Apr 2020 16:08

I would say that price has nothing to do with it, and it is not your place to pass judgement on what is reasonable or not. If it is an office chair (and there are indeed some pricey ones out there) it is no business of yours if he wants to go for a top-of-the-range model. The fact that there may be cheaper options is neither here nor there.

The question has therefore nothing to do with price but with use.

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Replying to Wilson Philips:
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By Lutondata
24th Apr 2020 16:20

Uuum. Interesting. Lets see what the overall verdict is on this. I disagree.

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Replying to Lutondata:
Psycho
By Wilson Philips
24th Apr 2020 16:28

So you think that you ought to be dictating to director clients what is reasonable and what is not in respect of their business expenditure? Really?

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Replying to Wilson Philips:
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By Lutondata
24th Apr 2020 16:36

Not sure if I would choose "Dictate". More a pragmatic approach. Anyone who does bulk CIS returns knows that they are clamping down on telephone claims and definitely no use of home, as an example. Yes, I know they are not limited, it was just an up to date example. . But from my experience revenue do use a reasonability test. Or as you might say being dictators?

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Replying to Lutondata:
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By ngaccounts
24th Apr 2020 16:37

Have to disagree price is not a factor here. A company is free to spend what it wants & where it wants as long is satisfies W&E.

BUT the price may well be one factor HMRC uses to determine if a BIK has arisen.

Should there be a genuine reason for such an expensive chair - say its a special osteopathic one for a director with a bad back - then that would be different.

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Replying to Lutondata:
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By meadowsaw227
27th Apr 2020 10:14

I disagree as well, I was always taught something called the "materiality" test ! .

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Replying to Wilson Philips:
panda ketteringUK
By ketteringUK
25th Apr 2020 18:23

Absolutely agree with this. Why big footsie100 companies can spend £1k for desk or chair and SME's cannot?

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Slim
By Slim
24th Apr 2020 15:40

Are you questioning this based on the price? It doesn't seem pricey to me.

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Replying to Slim:
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By meadowsaw227
27th Apr 2020 10:16

Depends on how big you are "Slim" !

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Slim
By Slim
24th Apr 2020 15:40

..

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By ireallyshouldknowthisbut
24th Apr 2020 16:56

As other respondents has noted, price is a red herring.

Your only relevant question is around private use and a potential BIK

In situations where it might "feel wrong" you need to go back to what the law says and separate 'facts' from 'feelings'.

Or to put it another way, if your client had a tax investigation tomorrow, which item(s) of legislation or case law will HMRC use to prove there is no valid claim? 'HMRC wont like it' is not an answer.

My client bought a £4k cycle under the cycle to work scheme. He says he mainly uses it for cycling to work, and having checked the type of bike, it is suitable for that purpose.* The fact I think he is a complete tool for wasting at least £3,000 (given you can buy an excellent bike for £1k, and a perfectly decent one for £500, and an OK one for £250) is neither here nor there.

*HMRC's angle here would be if its actually a weekend bike, which is the point i quizzed my client on.

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Replying to ireallyshouldknowthisbut:
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By ngaccounts
24th Apr 2020 22:00

All about perspective. My bike cost circa £2.5k, yet rest of my cycling club spent twice or even 3 times that. Suspect non of them would dream though of paying more than 100 quid for a chair.

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By nick farrow
24th Apr 2020 16:55

I would claim 100% of VAT and 100% AIA on the net - it's clearly a 100% business equipment and not that expensive - see here
https://www.johnlewis.com/herman-miller-aeron-office-chair-graphite-poli...

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Hallerud at Easter
By DJKL
24th Apr 2020 17:08

Price is academic except the client is an idiot for spending that much on a chair.

My employer at my direction (I have company credit card) has purchased a £125 chair (actually a gaming chair) as after a week working from home my back was killing me (The unpaid labouring in the garden could have contributed).

The one here will go to the office at the end of this and given the sheer hassle and effort moving half my office files to the house and having to take vast amounts of personal paperwork to meantime dump in the office, to make space, frankly £4 a week is not nearly enough. I still have the old chair sitting on the landing as have nowhere to put it, maybe I ought to dismantle it and use the parts to make a garden sculpture.

Next purchase my employer can make is maybe a painting, I already have one Fernand Laval so perhaps another one for my home office, a small one will be cheaper than the OP's chair.

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Replying to DJKL:
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By legerman
25th Apr 2020 09:50

DJKL wrote:

frankly £4 a week is not nearly enough.

Great news DJ, it's gone up to £6 a week now ;-)

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By Lutondata
24th Apr 2020 18:00

Thanks everyone. I`ll have a look through ITEPA and make a decision. Bearing in mind we are allowed £4 a week I think the price is a p.... take. OK call me a dictator! Just experience

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Replying to Lutondata:
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By leicsred
24th Apr 2020 18:21

I don't understand the fixation with £4 per week. If he bought a laptop would you expect that to come out of the £4 per week too?

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Replying to Lutondata:
Psycho
By Wilson Philips
24th Apr 2020 18:27

Now I understand your confusion. the £4 (now £6) allowance has nothing to do with the matter in hand. But I too remain confused- I don't know what 'decision' you need to make. The company is perfectly entitled to claim capital allowances on the chair (or expense it if it falls below the company's capitalisation de minimis).

Whether or not there is an assessable benefit is another matter - perhaps that is the decision that you are finding difficult, but there is either a benefit or there isn't, the cost of the asset has nothing to do with it.

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By carnmores
24th Apr 2020 18:58

its an office chair claim

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By I'msorryIhaven'taclue
24th Apr 2020 19:27

On the issue of cost, the Revenue are aware that it's fairly well established that the law does not make a man's bargains.

I had fisticuffs with the Revenue a decade back over (a) first class train fares (rebutted by a variation of the principle that one does not have to take the most direct route on a business trip); and (b), as is applicable to your case - that if the director chose to dine at Gordon Ramsay's eatery (where the plonk costs more than the chow, incidentally) then that was perfectly allowable.

A typical lunchtime bill for our protagonist as a single diner might be £500 - £900 but it was all legitimate subsistence expenses, and all perfectly allowable. The law does not make a man's bargains - if he chooses to pay £900 for a lunch, or for that matter for a chair, then that is his prerogative. Not dissimilar to choosing to travel 1st class rather than sit amongst the Hoi Polloi.

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Replying to I'msorryIhaven'taclue:
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By whitevanman
24th Apr 2020 21:55

Don't think I would wholly agree.
There are 2 distinctly different scenarios and which may be causing the OP's confusion.
For a sole trader, the Wholly and Exclusively test does allow HMRC to look at motive and price and to make an adjustment where what is purchased is "outside the norm". So, for example, a plumber driving a Rolls might be challenged and the PU adjustment would take account of the cost.
With a company the situation is totally different. As everyone knows (but often seem to forget) the company is a separate legal entity (distinct from the Directors). The company can choose to provide whatever it chooses for its Directors / employees and absent any peculiar facts, it is not for HMRC, or anyone else, to tell the company it cannot do so.
In the present case the company could pay £10k for a chair which it provided for the director. The cost is allowable for tax purposes.
The second leg however, is the question of benefits.
If the chair is provided at the home of the director, there is potentially a BIK because the chair is at the Director's disposal and can be used privately (does not matter whether it is actually used, but see next).
The final bit is quantification of the benefit. Don't think it has changed since I last looked, the starting amount is 20% of the value when first applied as a benefit but that is then reduced if there is mixed use. If it is shown that there is no PU, I think the result is no benefit (HMRC guidance around EIM21638 refers).

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Replying to whitevanman:
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By ngaccounts
24th Apr 2020 22:10

I would agree with that. The reason i still maintain cost has a part to play here though, is it would give HMRC ammunition to argue the chair did have some private benefit. Or looking at it other way round, the director may find it hard to argue it was purely a business decision & there was no private motive.

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Replying to ngaccounts:
Psycho
By Wilson Philips
24th Apr 2020 22:23

If the chair is of the type typically used in an office environment, is situated in an office environment, and is used solely for the purposes of the employment, it doesn’t matter if the chair cost £10 or £1,000. The fact that the latter may (hopefully) be far more comfortable and/or durable is of no consequence. Motive is of no relevance when applying the benefits code. As I said earlier, there is either a benefit or there isn’t. The only relevance of cost is in quantifying the benefit.

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Replying to Wilson Philips:
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By whitevanman
24th Apr 2020 22:49

Agreed.

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Replying to Wilson Philips:
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By I'msorryIhaven'taclue
25th Apr 2020 11:27

Wilson Philips wrote:
The only relevance of cost is in quantifying the benefit.


Trivial benefit?
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Replying to ngaccounts:
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By whitevanman
25th Apr 2020 09:41

The company is not a real person so decisions have to be made by the directors.
There is some old case law that says the motives of the company are determined by considering the motives of those making the decision. But, if you apply that too widely, can you imagine how many items of expenditure might be challenged?
Every decision is to some extent influenced by personal choice. So it is only argued in exceptional circumstances.
There is another issue when looking at something provided for directors or employees. It is for the company, and no-one else, to decide how to remunerate its staff. Take for example my previously mentioned plumber. He could be paid £100k (or more if full-time!). Or he might be given a Rolls and a salary of £80k. It is for employer and employee to agree.
The Benefits code provides the "balance".
After all, HMRC will collect tax and NIC whereas the business will get only CT relief. So there is no real incentive for them to challenge.
The cost of the chair in the current example is allowable in full. The benefit charge could well be Nil.

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Replying to whitevanman:
Hallerud at Easter
By DJKL
25th Apr 2020 11:00

Is there not a tax case concerning a farmer with a Rolls Royce and taking pigs to market (Porcine travelling in style, akin to Pop Larkin's motor in the "Darling Buds of May")?

I remember, from years ago, a cartoon , I think in Taxation, of the happy pigs sticking their snouts out of the window?

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Replying to DJKL:
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By whitevanman
25th Apr 2020 15:54

Sounds familiar but I cannot bring to mind a name.
Whatever happened to really interesting cases like that. All we seem to get nowadays is appeals against penalties and procedural issues. Bring back the wild Boars and get rid of the travelling bores. Please.

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Replying to DJKL:
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By Dib
27th Apr 2020 13:39

Chambers (Northiam Farms) Ltd v Watmough? It was a Bentley.

I had a long correspondence with a (proper) Inspector of Taxes many years ago now involving the case.

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Replying to Dib:
Hallerud at Easter
By DJKL
27th Apr 2020 14:01

Thanks for that- I should have remembered it was a Bentley as a Dinky Continental Sports was my favourite toy car in the 1960s, now long gone,so much so that I acquired a replacement for it on E Bay a few years ago which now sits on the window ledge of my office.

Will read the croner-i with interest.

https://library.croneri.co.uk/cch_uk/btc/36-tc-711

Edit- Having just skim read it is also relevant re the price of the car as well as merely considering private/personal use, so very on point re the original question here. That must be a first, one of my aside comments actually having some relevance to the topic.

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By Whatisname
24th Apr 2020 22:55

It’s of no consequence how much the chair cost. When in practice we used Herman Millar chairs because they were/are really good and relieved a lot of back problems among staff, me included, and yes they cost around £900 each.

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Replying to Whatisname:
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By I'msorryIhaven'taclue
25th Apr 2020 11:30

I see... and have any of you taken your chairs home for lockdown? :)

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Replying to I'msorryIhaven'taclue:
Psycho
By Wilson Philips
25th Apr 2020 11:33

A number of our employees have, as well as 2nd monitors etc

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Replying to Wilson Philips:
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By I'msorryIhaven'taclue
25th Apr 2020 12:39

I see. Any P.U? :)

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Replying to I'msorryIhaven'taclue:
Psycho
By Wilson Philips
25th Apr 2020 12:47

Well, if they would rather sit in a swivel chair rather than a comfy sofa to watch Tiger King that’s up to them. I’m not going to enquire. Perhaps I should have fitted each chair with a GPS tracker so that I could check if the chair is moved from the office to the lounge.

I will of course be insisting that they switch off the second monitor when they’re browsing [***] sites on the computer ;)

[You can make an educated guess as to what the “***” has replaced]

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Replying to Wilson Philips:
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By I'msorryIhaven'taclue
25th Apr 2020 17:39

I've not come across Tiger King before, and after consulting that normally reliable font of Wisdom Wikipedia I'm still none the wiser. Is this the second coming of Peter Griffin? Am I missing out on lock-down life?

btw given that your spot-the-brain-cell Q relates to employees, my spot-the-missing-word guess is "PAY".

My cohort had a wannabee comedian former-tax-inspector-turned-comedian senior lecturer who rarely tired of his old chestnuts: one of which involved as chief protagonist a GP who would - on his accountant's advice - celebrate each and every Christmas with his family at a table set up in his waiting-room.

Come to think of it, there may not have been a punch-line to that particular anecdote of his. But it did serve to emphasise the unholy attention to detail that some amongst us are guilty of; and this thread served as a reminder, given its particular attention to detail. I'm mindful that Rebecca Bennyworth qualified some of her pearls of wisdom with "...always assuming anyone cares what you've submitted".

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Replying to I'msorryIhaven'taclue:
n/a
By Trish Baillie
27th Apr 2020 10:17

I have taken my office chair home as I could not find an affordable one that would arrive anytime in the next month or so. One of the partners arranged to deliver my lovely "back kind" chair to me at home. Absolutely no private use though - I work to office hours and do not go into my home office out of hours.

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