Hi,
I'm just staring out in the FHL business, and have identified a couple of properties with good potential.
My question is, when does my business formally start for tax purposes?
One of the properties requires some renovation work (window frames and lintels from initial inspection), so am I right in thinking that I could offset those against future earnings (or earnings from my day job) even if I haven't started to let the property yet?
How about the initial furnishing cost?
Out on a limb - how about conveyancing and surveys since this is a business purchase?
I realise that these questions could be better aimed at an accountant, but I haven't got to the stage of getting one yet...
Many thanks in advance for the benefit of your experience!
Regards
Dave
Up-front costs - allowed in capital allowance?
Up-front costs - allowed in capital allowance?
Open for business.
Hi Dave and welcome!
You need to visit the HMRC site and search for FHL and capital allowances.
Whilst allowable expenditure can be offset (using the allowable percentages) against other income at present there are moves afoot to change that and also to change the qualifying criteria.
Another good starting point would be a search here on Furnished Holiday Let as it's been discussed quite a bit.
You need to visit the HMRC site and search for FHL and capital allowances.
Whilst allowable expenditure can be offset (using the allowable percentages) against other income at present there are moves afoot to change that and also to change the qualifying criteria.
Another good starting point would be a search here on Furnished Holiday Let as it's been discussed quite a bit.
Thanks Windy,
Yes I've been following the proposed changes for next year - which was partly why I'm so curious as to how up-front costs are handled, as these would be incurred in the current tax year.
I did spend a while looking through the HMRC guidelines, and even as a degree-educated enginnering professional, find them a bit tricky to get my head around. Still it was an eye-opener to see how much I don't know!
Is it possible to summaise the allowances and percentages, or is it time I started talking to an accountant?
Thanks
Dave
Yes I've been following the proposed changes for next year - which was partly why I'm so curious as to how up-front costs are handled, as these would be incurred in the current tax year.
I did spend a while looking through the HMRC guidelines, and even as a degree-educated enginnering professional, find them a bit tricky to get my head around. Still it was an eye-opener to see how much I don't know!
Is it possible to summaise the allowances and percentages, or is it time I started talking to an accountant?
Thanks
Dave
Open for business.
-
barbersdrove
- Posts: 985
- Joined: Thu Mar 18, 2010 7:48 pm
- Location: crowland south lincolnshire
You're not the only one who is finding it hard to get your head around the rules. even the Inland Revenue itself gave me completely false information when i spoke to them about this last Jan. If I remember correctly I posted the correspondence I had with them on the Accommodation Knowhow website. I'll go see if it's still there and copy it here. Hang on a sec......
Found it!
having with the IR to clarify. As you will see, it's been difficult getting the correct information!
I decided to write to the lady whose name appears at the bottom of the IR document on their website re these changes. I wrote:
I hope you can help me I am confused re the proposed rule changes for Furnished holiday lets. So much so that I booked a call with one of the IR technical chaps and spoke to him yesterday. He tells me that I will still be able to claim capital
allowances for the plant and machinery I purchase for our proposed second letting unit (due to open in the summer) after April 6th 2010, whenever it is purchased. I was wondering whether I could save myself some money by purchasing them prior to the changeover date.
He agreed that the rules were changing re offsetting losses etc but not with regard to capital allowances in the UK. He stated that it will apply to properties within the European Economic union with exception for the UK. (I thought we were in the European Economic Union but I may be wrong). The Visit Britain Pink Booklet that sets out the legislation for people like us, seems to contradict what i was told as did the Tax expert I contacted through 'Ask an Expert' when I couldn't get through to anyone at the IR last week. I've read the document on the IR website which seems to confirm what Visit Britain and Ask an Expert have told me, namely that I will not be able to claim capital allowances for machinery used within letting unit after April 2010. Whereas the IR themselves are telling me I can continue
to claim them unless the property I am letting is abroad within the European Economic Union.
Hopefully you will be able to clarify this for me once and for all.
She wrote back:
Thank you for your email below.
On the 9 December HMRC published guidance about the tax treatment of those who let furnished holiday accommodation following the withdrawal of the furnished holiday letting (FHL) rules. This guidance can be found on our website at http://www.hmrc.gov.uk/pbr2009/withd...rules-3760.htm.
The withdrawal of the FHL rules will apply to all EEA FHL businesses, including those within the UK. I am sorry that the information you were given earlier was incorrect, if you let me know who you spoke to I will contact them so that this does not happen again.
In general the withdrawal of the FHL rules will not affect the calculation of your taxable business profits, but it will change the tax relief available for capital expenditure. So, you may continue to claim your business expenses as a deduction when you compute your taxable income in the same way as you do now. Business expenses may include; mortgage interest, repairs, business utility bills, employee wages etc.
The published guidance explains how capital allowances will be affected. Briefly, for continuing FHL businesses such as yours
* capital allowances will continue to be available on expenditure incurred before 5 April 2010. For such expenditure, the normal rules on disposal proceeds, balancing charges and balancing allowances will also continue to apply.
* expenditure incurred after 5 April 2010 in providing plan and machinery that is not for use in the FHL property (e.g. the computer that you use to manage bookings and emails etc) will continue to qualify for plant and machinery capital allowances.
* expenditure incurred after 5 April 2010 in providing plant and machinery for use in the FHL property will not qualify for plant and machinery capital allowances.
* after 5 April 2010 you may also claim a tax deduction equal to 10% of net rents (known as the wear and tear allowance) in addition to any capital allowances that you are entitled to.
I replied:
Thank you for that answer. I'm afraid I didn't record the name of the person I spoke to although he did tell me, I just don't remember it. From your answer am I right in deducing that I could therefore benefit by purchasing capital items for the new unit prior to April 2010? I promise this is my last question.
to which she replied:
I am sorry but I am unable to give individual tax advice. I can only explain how the tax rules apply to different circumstances.
If you incur qualifying capital expenditure on plant and machinery for use in your FHL business (e.g. if you buy certain capital items) before 5 April 2010, then you will be entitled to claim capital allowances on those assets, even after the FHL rules have been repealed.
If you were to buy those same items on or after 6 April 2010, then you will not be able to claim capital allowances on them.
25-01-2010, 11:11 AM
Found it!
having with the IR to clarify. As you will see, it's been difficult getting the correct information!
I decided to write to the lady whose name appears at the bottom of the IR document on their website re these changes. I wrote:
I hope you can help me I am confused re the proposed rule changes for Furnished holiday lets. So much so that I booked a call with one of the IR technical chaps and spoke to him yesterday. He tells me that I will still be able to claim capital
allowances for the plant and machinery I purchase for our proposed second letting unit (due to open in the summer) after April 6th 2010, whenever it is purchased. I was wondering whether I could save myself some money by purchasing them prior to the changeover date.
He agreed that the rules were changing re offsetting losses etc but not with regard to capital allowances in the UK. He stated that it will apply to properties within the European Economic union with exception for the UK. (I thought we were in the European Economic Union but I may be wrong). The Visit Britain Pink Booklet that sets out the legislation for people like us, seems to contradict what i was told as did the Tax expert I contacted through 'Ask an Expert' when I couldn't get through to anyone at the IR last week. I've read the document on the IR website which seems to confirm what Visit Britain and Ask an Expert have told me, namely that I will not be able to claim capital allowances for machinery used within letting unit after April 2010. Whereas the IR themselves are telling me I can continue
to claim them unless the property I am letting is abroad within the European Economic Union.
Hopefully you will be able to clarify this for me once and for all.
She wrote back:
Thank you for your email below.
On the 9 December HMRC published guidance about the tax treatment of those who let furnished holiday accommodation following the withdrawal of the furnished holiday letting (FHL) rules. This guidance can be found on our website at http://www.hmrc.gov.uk/pbr2009/withd...rules-3760.htm.
The withdrawal of the FHL rules will apply to all EEA FHL businesses, including those within the UK. I am sorry that the information you were given earlier was incorrect, if you let me know who you spoke to I will contact them so that this does not happen again.
In general the withdrawal of the FHL rules will not affect the calculation of your taxable business profits, but it will change the tax relief available for capital expenditure. So, you may continue to claim your business expenses as a deduction when you compute your taxable income in the same way as you do now. Business expenses may include; mortgage interest, repairs, business utility bills, employee wages etc.
The published guidance explains how capital allowances will be affected. Briefly, for continuing FHL businesses such as yours
* capital allowances will continue to be available on expenditure incurred before 5 April 2010. For such expenditure, the normal rules on disposal proceeds, balancing charges and balancing allowances will also continue to apply.
* expenditure incurred after 5 April 2010 in providing plan and machinery that is not for use in the FHL property (e.g. the computer that you use to manage bookings and emails etc) will continue to qualify for plant and machinery capital allowances.
* expenditure incurred after 5 April 2010 in providing plant and machinery for use in the FHL property will not qualify for plant and machinery capital allowances.
* after 5 April 2010 you may also claim a tax deduction equal to 10% of net rents (known as the wear and tear allowance) in addition to any capital allowances that you are entitled to.
I replied:
Thank you for that answer. I'm afraid I didn't record the name of the person I spoke to although he did tell me, I just don't remember it. From your answer am I right in deducing that I could therefore benefit by purchasing capital items for the new unit prior to April 2010? I promise this is my last question.
to which she replied:
I am sorry but I am unable to give individual tax advice. I can only explain how the tax rules apply to different circumstances.
If you incur qualifying capital expenditure on plant and machinery for use in your FHL business (e.g. if you buy certain capital items) before 5 April 2010, then you will be entitled to claim capital allowances on those assets, even after the FHL rules have been repealed.
If you were to buy those same items on or after 6 April 2010, then you will not be able to claim capital allowances on them.
25-01-2010, 11:11 AM
A cream cake a day keeps the wrinkles at bay:)