I have a client that buys properties, renovates them and then either sells them or rents them out.
Previously, the accountant that did his returns calculated them on the basis that any expenditure on the renovation of the property sat on the balance sheet until the property was sold and therefore would be taxed on the profit in the year of sale.
A subsequent accountant disputed this and re-submitted his last three returns on the basis that all the materials, labour etc that went into the properties were revenue expense and were written off in the year that they occurred - this creates a huge loss in the year of the renovation and a huge gain in the year of sale. As the original method meant that the rental income was taxed in the years that they occurred and the tax was paid, the previous accountant claimed the amount of the tax back.
Surely a rental property is classed as an asset and a property for resale is effectively stock and therefore the first accountant was correct?
I've googled this and I'm pretty certain that I'm right, I just need to be absolutely sure as the client won't be pleased if he's got to pay back the tax that he should've paid on the profit from the rental.
Is there anyway that I can correct this in the next return rather than re-re-submitting the old ones?