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Publican, slashed tyres.

Publican, slashed tyres.

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I think I know the answer to this but will put it out there anyway.

Publican refused to serve a "customer" drink on Saturday night.  The publican found his 4 tyres slashed after closing time.

Tax deduction?

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30th Aug 2011 15:22

Interesting

Gut feel is no.  I think you will fail to meet the wholly & exclusively test.  It's unfortuante that if a compensation payment had been made for damage to another customer's car, then I think that might have been allowable - but this is different, because there is no legal obligation (I presume) for the business to pay for the damage to a car on its property, and there is no business purpose to making the payment (e.g. customer goodwill) in this case.

Is the car used for the purposes of the business at all?

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30th Aug 2011 15:23

I'm don't mean to be flippant...

... but were the tyres slashed wholly and exclusively for the purpose of the business?

I doubt it is allowable, especially if it is a personal car.

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By blok
30th Aug 2011 15:39

The costs of running the car are apportioned based upon business and personal miles travelled. (home to pub is private).

At a slight tangent, but if the business had been a company and the company had reimbursed an employee/dirctor for the cost of 4 new tyres, assuming this would be tax deductable in the company would this be W, E and N and avoid a BIK charge on the individual?

 

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30th Aug 2011 15:39

-

Criminal damage -

If the culprit is charged & prosecuted then the Magistrates Court would almost certainly make an order against the culprit (but your client will have to make sure the CPS ask for one).Failing the above a claim in the civil courts - providing he can prove who did it (witnesses, CCTV ? ).Failing both of the above he should be insured.

Unless the vehicle is used solely for business purposes (in which case he might just have an argument) it is not a business expenses and not allowable.

 

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to Anonymous
31st Aug 2011 12:01

Re: Criminal Damage

It's not worth claiming on insurance for a set of tyres.  By the time you deduct the excess, the claim payout will be very low, and you will more than pay for it in future years by losing your no claims discount and having a reportable claim on your history.

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30th Aug 2011 19:30

Worst of both worlds

If the business had been a company reimbursing a director for a personally owned car costs there would definitely be a BIK on paying his personal liability. Unless the upkeep of the vehicle was a contractual obligation making it an employment cost it would not be deductible for the company either.

My car insurance allows claims for vandalism - there may not be a cost other than the excess anyway

Marion

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By BKD
30th Aug 2011 19:33

Partially allowable

I don't consider there to be any difference between the trader having to replace his tyres because they were slashed and having the misfortune to drive over some broken glass in the car park and puncturing all four. It should be allowed as any other repair, according to overall business/private use split.

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30th Aug 2011 19:33

Agreed BKD

As a sole trader you claim a proportion of the overall motoring/maintenance costs.

Marion

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30th Aug 2011 20:57

I would claim a % also

A no brainer surely- why are we into insurance issues, and who (at HMRC) would really check the purchase of new tyres?

I think sometimes we accountants create issues that do not exist......

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By Old Greying Accountant
30th Aug 2011 21:41

But what ...

... is a fair proportion for the business element of motor expenses for a publican?

The customers come to him, as do most of the suppliers - it is only the weekly trip down the cash and carry surely, and may be the odd brewery bash?

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By BKD
to k743snx
30th Aug 2011 22:39

It's the principle that matters

Old Greying Accountant wrote:

... is a fair proportion for the business element of motor expenses for a publican?

The customers come to him, as do most of the suppliers - it is only the weekly trip down the cash and carry surely, and may be the odd brewery bash?

Fair point. In truth, the %age is probably pretty low (unless he has a vehicle that he uses specifically for pub business) but the point is that, contrary to suggestions above,  there is no need to use the vehicle solely for business purposes in order to claim a deduction, in part, for the expense.

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By Old Greying Accountant
30th Aug 2011 22:48

True

And with the hours publicans work, it may be the only personal miles are the annual family week in Cleethorpes!

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30th Aug 2011 22:53

Risky

memyself-eye PM | Tue, 30/08/2011 - 20:57 | Permalink

"....... , and who (at HMRC) would really check the purchase of new tyres? ""

 

 

Accountant during HMRC investigation - "well I claimed it because I didnt think you'd check".

Pub's are one of the most likely trades to be pulled for a "routine" fishing expedition - [correction - check]. 

 

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By BKD
31st Aug 2011 08:14

Missing the point

Whether HMRC were to check or not, the expenditure would be allowable - in part. There seems to be some confusion, in linking the expenditure with the crime. The cause is entirely irrelevant - the trader is incurring expenditure on new tyres that will be used, partly at least, for the purposes of the trade. As I said, it wouldn't mattter if the tyres were required because they were slashed, punctured or bald or he simply wanted better performance - it is the purpose of the expenditure, not the reason, that matters - it's quite a simple principle.

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31st Aug 2011 08:52

No one is arguing about the principal [removed by mod]

 

The point is that excessive or apparently unnecessary expenditure is likely to ring alarm bells with HMRC and almost inevitably lead to investigations and concocted acusations by HMRC.

In the scenario painted by the OP any tax inspector with half a brain is going to suspect an overclaim of expenses.  Why wasnt this cost claimed back from the customer?  Why wasnt it claimed from the insurance? Why should the taxpayer subsidise the business by allowing an expense to be claimed that should have been paid by the busineses insurers?

In other words, I am NOT saying it should not be claimed as a business expense, but I AM saying that the OP would be well advised to have full file notes (crime number etc) inj case it is questioned in the future.

 

 

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By blok
31st Aug 2011 09:01

.

Thanks people.

The trader only has a 10% claim for business miles, the cost of the tyres are £600 + vat.

The trader is looking for a 100% deduction on the £600 (not a 10% deduction) because it happened in the course of his trading duties and it was specifically as a result of the trade (if he was not on duty that night his tyres would not have been damaged). 

Whilst I understand that this does not metter a lot to HMRC it is not an easy thing to explain to a trader who  sees this expenditure as 100% business.

 

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31st Aug 2011 09:02

@BKD

You seem to have all the "thanks" on this thread (which may be deserved!), however you are considering a slightly one-sided approach.  You haven't actually considered the position if the business paid for the damage, rather than the individual.  You may think the answer is obvious, but sometimes a full consideration gives an unexpected outcome.  I aimed to consider this in the first reply, but got no "thanks" at all!

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By BKD
to daveforbes
31st Aug 2011 10:00

?

thisistibi wrote:

You seem to have all the "thanks" on this thread (which may be deserved!), however you are considering a slightly one-sided approach.  You haven't actually considered the position if the business paid for the damage, rather than the individual.  You may think the answer is obvious, but sometimes a full consideration gives an unexpected outcome.  I aimed to consider this in the first reply, but got no "thanks" at all!

I'm not quite sure what you're saying here - I've only ever considered the position of the business (which in the case of a sole trader is of course the same thing) paying to replace the tyres.

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By blok
31st Aug 2011 09:04

thanks tibi.

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31st Aug 2011 09:07

@Blok

I had a very similar query to you on here a few months ago.  I had a self-employed individual go on a work related trip, and park at a client premises where his car was driven into (no note left).  It cost £350 to repair and my trader expected a 100% tax deduction because the damage occured on a business trip.

I therefore completely sympathise with your situation, however I think the best explanation is that tax isn't fair - the provisions only allow for the business %age of all car costs, they can't pick and choose what business percentage applies to different costs.

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By blok
31st Aug 2011 09:17

.

I said this to him but it is his opinion that this is not motoring costs it is "repairs" to property damaged by a customer.  He feels that the business has a duty to put it right because the nature of the business is that these things happen sometimes.  

I asked whether he would pay the tyre costs if the damage had been done to another customers car, he answered that he feels that he would pay the bill as a measure of goodwill to the customer.

 

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31st Aug 2011 09:50

Just to be clear

I'm not saying he should claim the full 100%, only the same % claim for new tyres as is usually claimed for business related motoring costs. What I am saying is that the cause is irrelevent. I can see how the publican would not agree with the % but that's part of our job to explain.

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By BKD
31st Aug 2011 10:30

Contradiction?

Spartacus PM | Wed, 31/08/2011 - 08:52 | Permalink

"I am NOT saying it should not be claimed as a business expense"

yet, a few posts earlier:

"Spartacus PM | Tue, 30/08/2011 - 15:39 | Permalink

.....

Unless the vehicle is used solely for business purposes (in which case he might just have an argument) it is not a business expenses and not allowable"

 

Forgive me if I find those two statements to be conflcting.

But the question was not about the risk of an enquiry etc in making the claim - the question was simply whether or not a tax deduction would be available. As someone else said above, "I think sometimes we accountants create issues that do not exist......"

As to your other comments, without knowledge of the accounts, I don't see how one can possibly state that the purchase of 4 tyres for £600 would inflate motor expenses to the extent that 'alarm bells' would start ringing. And I don't see that failure to claim from the customer (perhaps he didn't have sufficient proof) or the insurers (perhaps the excess/no-claims made it uneconomic) has anything to do with it.

Fact is, the trader has incurred expenditure which will be used for the purposes of his business, so there should be no question of a (partial) deduction. HMRC could raise an enquiry if they wanted - I'd send them straight back with their tails between their legs.

But let's leave it at that - you have your views on the treatment, I have mine, it's a difference of opinion and nothing else. Only one more point to add - it's perhaps just as well that a certain ex-member isn't here, otherwise you might find yourself accused by him of "taking the line of least resistance".  ;)

 

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31st Aug 2011 10:47

@BKD

Sorry if my comment was confusing.  There are two possible ways to treat the payment:

a) deduct the full cost in the pub's P&L as a compensation payment made for damage occuring on the premises, and then consider whether it is allowable for tax purposes;

b) treat it as a personal expense for the owner and bring only the business percentage into the tax return as a deduction.

You have considered only option b. 

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By BKD
to My New Name
31st Aug 2011 11:17

Confusing indeed

Perhaps I've misunderstood the nature of the 'publican' and the ownership of the car.

I have assumed that the publican is a sole trader (or indeed trading in partnership) and that the car belongs to him or the partnership. In that case, I don't follow how the replacement of tyres on a vehicle used (partly) in the business would be treated as anything other than a motoring expense - I certainly would never consider treating it as a compensation payment (how can a sole trader "compensate" himself for damage to his own business asset?).

What I have considered is in fact closer to (a) - let's call it (a1) - deduct the full cost in the P&L as a motoring expense, and then consider how much of it is allowable for tax purposes.

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31st Aug 2011 11:18

Black & white - or very grey.

The upshot of this discussion is that there is no definative right or wrong answer.

That again indicates to me that tax law is poorly drafted and so open to interpretation that how much tax you pay really is a lottery depending on who does the accounts and which Inspector you happen to get in any enquiry.

 

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By BKD
to dahowlett
31st Aug 2011 12:05

Only very slightly grey

Spartacus wrote:

The upshot of this discussion is that there is no definative right or wrong answer.

That would certainly seem to be the case when the same person gives opposing answers!

But it seems that most agree that there is in fact a right answer - a deduction should be allowed for part of the replacement cost. The only 'grey' issue is the question of how much that deduction should be. In this case, an enquiry shouldn't matter - provided the taxpayer has evidence to support the business element deduction, the Inspector should be unable, no matter how hard he tries, to adjust the figure. The only 'lottery' is therefore the competence of the accountant/tax adviser and whether he/she recognises that a deduction is available.

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31st Aug 2011 11:53

Definative

On the contrary, I would say that there is one definitively correct way to treat most things, which the majority of accountants/tax advisers would agree is the most tax efficient treatment.  Of course accountants aren't right 100% of the time, but they should conceed upon discussion if their thoughts prove to be incorrect or not as efficient.  I suppose that's the benefit of somewhere like Accountingweb.

@BKD - I suppose you are right, as a sole trader it's difficult to see how you could make a compensation payment to yourself.  But I do think it warranted at least some mention :-)

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By blok
31st Aug 2011 11:56

.

Agree with spartacus.

We are going to claim the cost of the tyres with the caveat that should this be looked at by HMRC they will have an argument with us along the lines that has been mentioned above.

The client is happy with that risk and we are happy if they are happy so long as there no obvious mischief.

 

 

 

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By BKD
to davidwinch
31st Aug 2011 12:13

Treading on thin ice

blok wrote:

Agree with spartacus.

We are going to claim the cost of the tyres with the caveat that should this be looked at by HMRC they will have an argument with us along the lines that has been mentioned above.

The client is happy with that risk and we are happy if they are happy so long as there no obvious mischief.

  

More than an argument - if HMRC were to enquire I'd give you very short odds indeed on a Revenue win. And remember, if HMRC have to ask one question, they'll take the opportunity to ask several. Think also how they would perceive (rightly or wrongly) your competence as a tax adviser - you may find several of your clients' returns suddenly selected for enquiry. For the sake of the tax on £540, is it really worth it? Your call, of course. 

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to davidwinch
31st Aug 2011 12:19

Filing position

blok wrote:

Agree with spartacus.

We are going to claim the cost of the tyres with the caveat that should this be looked at by HMRC they will have an argument with us along the lines that has been mentioned above.

The client is happy with that risk and we are happy if they are happy so long as there no obvious mischief.

Perhaps you've not had the dubious pleasure of working at a large accounting firm.  They have something called a "filing position".  In other words if you can come to some kind of reasonable technical position as to why you are treating something as allowable, then that's enough to file but probably with suitable disclosure.  If you don't have a filing position, you can't file because it would be negligent to do so.  It seems to me that you don't have a filing position and that opens you up to penalties, not to mention what BKD already said above.

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By blok
31st Aug 2011 12:29

.

I like the "filing position" view.

The client wishes to make a claim for this expenditure and since I can give him no absolute reason as to why this will definitely fail I am obliged to take this "filing position" and move on.  If you look at my opening stance, I am with you, there is a high degree of doubt about this but if the clients wants that risk and reward then I dont need to fall out with him about it. 

As you say it is only £600 at 42% so I am not going to get all high and mighty with him.

 

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By BKD
31st Aug 2011 12:51

Materiality

Whilst I believe that your stance, blok, is wrong, I agree that either way there is little point in making a song and dance about a relatively small amount of tax (subject to my comment above about HMRC taking something of a dim view).

But what about extending this case to the extreme. What if, instead of slashing the tyres, the 'customer' had torched the car? Assume for this purpose that the car was uninsured (let's not open cans of worms about MLR issues etc - it's purely hypothetical!) and that the culprit could not be positively identified. Following the logic of the argument above, would it then be reasonable to claim 100% writing down allowances on the replacement vehicle? Of course not (or at least I don't believe so).

The simple answer to the client is that it is necessary to match the expenditure with the benefit. In this case, the expenditure should be matched, not with the offence, but with the economic life of the tyres and their use in the business.

Nothing further to add to this discussion.

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By blok
31st Aug 2011 13:01

.

I agree with you.  We have exhausted this relatively trivial matter.

If the car had been torched with no insurance recovery then that is a different matter.

On the facts as they are the amount is not material so we move on.

Many thanks

 

 

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01st Sep 2011 16:18

Get back to work

Phew looks like the bun fight is over and everyone's back to doing proper work ;o)

 

www.telfordassociates.com

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02nd Sep 2011 12:29

Insurance

Perhaps even if no insurance claim is made, the insurers ought to be advised so they can increase the premium just in case next time the car is torched and the Insurance found to be invalid !! Just a thought !

Everyone elses insurance will have increased as the postcode will now be a high crime area on the website ! LOL

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02nd Sep 2011 15:29

Car tyres

What an interesting discussion.  I would consider what the condition of the tyres was immediately before the damage.  If 50% worn, then I would claim 50% of the replacement cost as wholly allowable to re-instate the position before the crime.  Then treat the remaining 50% as betterness and bring in as a running expense and disallow the agreed proportion in the calculation.

Now back to work!

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03rd Sep 2011 18:30

Eh?

You are seriously saying that you are going to ask the client the 'condition' of the tyres so you can apportion a cost?

And you expect an honest (ie accurate) answer?

No wonder clients think accountants are nerds.......

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