Project financing and capital allowances

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Hi, Can you help me please about diciding what category a purchase should go into?
One of our clients just paid almost £200k on "project financing" as the contract says. The project is to build a small retreat, and for the £200k they purchased the building plans, business contacts, market research, value assessment of the building plot they are planning on building. That is not clear at this moment if the project would happen at all, as they are looking for investors. I'm now confused, as I don't think that this is indeed a project financing if they are not the ones building the retreat. They just bought something that they are wishing to sell with gain.
What category should this purchase go into? If it is "just" a purchase or if it is indeed their project to finance? Can they have capital allowance on it? If yes, which one?
Sorry, we are a small accountancy practice with mostly one man consultants, and this company hasn't done such purchases before either. So we don't have experience with this.
Any answer or gov.uk links would be much appreciated!

Replies (13)

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By David Ex
24th Apr 2024 11:59

Emily F wrote:

They just bought something that they are wishing to sell with gain.
What category should this purchase go into?

That sounds quite like stock.

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RLI
By lionofludesch
24th Apr 2024 12:29

Capital Allowances ? I vote no.

At the moment, there doesn't seem to be an asset.

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Replying to lionofludesch:
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By David Ex
24th Apr 2024 12:44

lionofludesch wrote:

At the moment, there doesn't seem to be an asset.

Not a £200,000 one!

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Replying to lionofludesch:
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By Emily F
24th Apr 2024 13:39

Thank you!
An expense then?

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Replying to Emily F:
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By David Ex
24th Apr 2024 14:02

Emily F wrote:

Thank you!
An expense then?

I said stock in my original response but then I guess at some stage you’ll need to consider its NRV for accounts purposes.

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Replying to David Ex:
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By Emily F
24th Apr 2024 14:06

Thank you!!

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Replying to David Ex:
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By Emily F
24th Apr 2024 14:15

Clearing the exact deatils with the client, I would add to my original question that the project got cancelled so technically they lost all their investment. Keeping the paperwork in case but it is kind of useless now.

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Replying to Emily F:
Routemaster image
By tom123
24th Apr 2024 14:21

Someone saw them coming..

sorry to hear the project didn't work

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Replying to Emily F:
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By FactChecker
24th Apr 2024 15:36

Not really adding anything useful, given that latest update, but they 'bought' absolutely nothing tangible for all that money? Ouch!

Is your client an individual or an incorporated company (albeit OMB)?
Was money borrowed for the 'purchase' (if so by individual or by company)?
Did client already own the plot for proposed building?
Who cancelled - and what penalties are there for such a cancellation?

These questions are not for answering, but endeavour to help you decide what has actually happened (as in was it a scam or just unfortunate, etc).

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Replying to Emily F:
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By Bobbo
24th Apr 2024 15:46

Emily F wrote:

Clearing the exact deatils with the client, I would add to my original question that the project got cancelled so technically they lost all their investment. Keeping the paperwork in case but it is kind of useless now.

At the time of incurring these professional fees (because that seems to be what they are) what the the intention for the overall project?

Was this "small retreat":
- to be constructed (perhaps speculatively) as stock and then sold
- to be constructed (again perhaps speculatively) and then leased to a third party to operate said retreat
- to be constructed and operated by the company itself

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paddle steamer
By DJKL
24th Apr 2024 16:03

£200k for plans and hot air, no land !!!!!!!!!!!

Strongly suggest client takes professional advice from someone before any other such speculative ventures.

However if they are still the buying kind with no due diligence I have a nice half pro indiviso interest in a car park (blows dust of top of file) , circa 22 spaces but third parties with access/egress rights over so a path through needs to be kept, will flog that to them for £200k.

Alternative a small garden plot (this one has cobwebs on file) , no ability to build on it , this is Edinburgh so planning for car parking a bust, but does have a couple of trees, 50 ft by 30ft site, they can buy it for £150k

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paddle steamer
By DJKL
24th Apr 2024 16:03

Duiplicate

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paddle steamer
By DJKL
24th Apr 2024 16:03

Duplicate

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