Treatment of costs

Treatment of costs re improvement to rented premises

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A sole trader rents a workshop. 

With the permission of the landlord, the sole trader is adding a small extension to accomodate a need for extra storage.

The total cost is anticipated to be £5k to £10k and is to be fully met by the sole trader.

Can the sole trader deem the cost to be a fixed asset and claim Capital Allowances?  Or can the cost be treated as a revenue expense?....or neither? 

Replies (10)

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By Wanderer
26th Mar 2021 15:50

On what basis would you be claiming Capital Allowances?
On what basis would you be claiming a revenue expense?

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By BayTree
26th Mar 2021 15:59

Yes, I do understand your response... but it seems unfair that the sole trader is incurring a 'business-related cost' that it is not allowable as a business expense...so there is no route to claim the cost as a business expense?

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Replying to BayTree:
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By Wanderer
26th Mar 2021 16:22

Where does fairness come into tax? What relevance is a classification as a 'business-related cost'? Have a look at Dixon (H.M. Inspector of Taxes) v Fitch’s Garage Ltd.(1) (1971-1977) 50 TC 509. The canopy was undoubtedly a 'business-related cost'.

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Replying to Wanderer:
RLI
By lionofludesch
26th Mar 2021 17:25

Wanderer wrote:

Where does fairness come into tax? What relevance is a classification as a 'business-related cost'? Have a look at Dixon (H.M. Inspector of Taxes) v Fitch’s Garage Ltd.(1) (1971-1977) 50 TC 509. The canopy was undoubtedly a 'business-related cost'.

I've bought petrol at Fitch's Garage. I didn't realise until I looked at my receipt.

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By Tax Dragon
27th Mar 2021 07:24

It's not unfair. Other sole traders also don't get tax relief.

Have a little read of this discussion... do read to the end.
https://community.hmrc.gov.uk/forums/customerforums/sa/47003f84-af1a-ea1...

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Replying to Tax Dragon:
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By BayTree
27th Mar 2021 08:48

Thank you Tax Dragon....the linked discussion has helped to confirm the situation. I have advised my client that there is no available tax relief for the costs suffered with regard to the building of the extension.....although at the very end of the linked discussion, it would appear that incorporated entities can get relief for lease payments - BIM46255?

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Replying to BayTree:
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By Wanderer
27th Mar 2021 09:27

BayTree wrote:

....although at the very end of the linked discussion, it would appear that incorporated entities can get relief for lease payments - BIM46255?

As can unincorporated entities, but that's nothing to do with your situation. Also that reference is all to do with lease premiums, not lease payments in general.
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Replying to Wanderer:
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By BayTree
27th Mar 2021 09:41

Thank you Wanderer. Yes, I am aware that BIM46255 referred to lease premiums and was unrelated to my situation....I was merely commenting that the person in the linked discussion appeared to ultimately achieve an element of tax relief.

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Replying to Wanderer:
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By Tax Dragon
28th Mar 2021 07:17

Wanderer wrote:

Also that reference is all to do with lease premiums, not lease payments in general.

How would you treat the transaction from the landlord's perspective?

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Replying to Tax Dragon:
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By Wanderer
28th Mar 2021 10:17

In practice probably do nothing because the likelihood of it being brought to the attention of the landlord's accountant is nil. Are you hinting towards PIM1212?

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