Client owns whole building which is then leased to the limited company. The company only uses the ground floor and decided to do up the second floor and sub-lease it to another company as meeting space. The company also rents out car parking spaces it doesn't use as part of the building. Does this need to be taxed as property income? If so, how would I split out the single lease cost and associated bills from the main trading activities when calculating the tax? Square ft usage?
The CTA 2009 Part 4 definition reads like it should be classified as property:
A company's UK property business consists of—
(a)every business which the company carries on for generating income from land in the United Kingdom, and
(b)every transaction which the company enters into for that purpose otherwise than in the course of such a business.
The other issue to consider is that the client only recently bought the building. Before this the capital allowances and spend on improvements was grouped with their main trade as it was never invisaged that the client would have the opportunity to own the building and associated land. Not sure how to approach these capital allowances when calculating the profit for the property business.
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Doubt it applies but have a read here:
Unfortunately I think that only applies to temporary and small receipts. I'm certain it will need to be separated out.
Anyone experienced this before and can recommend how they approached splitting the lease cost and overheads? I'm thinking of just splitting by square foot usage. As the capital expenditure improving the space benefited from AIA, I think I've dodged that bullet for now.
Given the rent payable will relate to the whole, and not all space is equal, some is more equal than others, if for rates purposes you are having the premises split in two an apportionment on rateable values (which is anyway a quasi net rental value badly executed) will likely be a reasonable basis re the rent payable.
Heating I would go on sq ft/time in use, insurance re relevant insured values etc.
The key is what form of lease sub tenant is getting that will to a degree dictate what information you have to hand, for instance with multi-lets we often have sub meters re say electric, heating by say gas (not sub metered) by sq ft, common overheads in stairs etc by sq ft of units served and so on. there is no surefire approach, commonsense and data available determines the art of the possible.
As your client is leasing to his own company has he considered leasing bit company uses to the company and other bit direct to what currently is the sub tenant?