My thanks goes to all who are running this very informative and objective forum so well.
I have little question to ask??
I bought a shop on lease during 2007/08. The lease term is 10 years.
Expenses are follows:
Lease ?500.00
Solicitor ?684.37
other property related expenses ?9524.36
Total ?1708.73

Q1: Which amount will be entered as Fixed Assets?
Q2: What %age is allowed to claim first year capital allowance?

Any help on it will be much appreciated.
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Capital allowances tax year 2007-08 was first year allowance 50% and writing down allowance 25%
Capital allowances tax year 2008-09 was annual investment allowance 100% on up to ?0k and writing down allowance on, existing assets and fixed assets in addition to the ?0k, reduced to 20%.

The lease is not a fixed asset.
The solicitors costs in arranging the lease would be legal and professional expenses rather than fixed assets.
If the "other property expenses" are fixture and fittings then they would be fixed assets and subject to capital allowances.
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Thank you very much terry,it's all about knowledge.:)
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I don't fully agree with Terry.

The lease is usually capitalised as an intangible fixed asset, and written off over the period remaining on the lease.

The legal costs relating to the acquisition of the lease are also capital, and are usually added to the lease costs.

There is no tax deduction for either of the above.

You'd need to break down the property related expenses. As Terry says, if anything is functional as plant and equipment then you can claim capital allowances on the costs. However, if anything is an alteration to the premises themselves, then it is not tax deductible. This expenditure is normally capitalised as leasehold improvements and written off over the period of the lease. If there is building work, then it's a fair bet that the builder will just give you a simple bill for the alterations - try to get a fully detailed breakdown so that your accountant can work out what can be claimed and what can't.
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I don't fully agree with Terry.

The lease is usually capitalised as an intangible fixed asset, and written off over the period remaining on the lease.

The legal costs relating to the acquisition of the lease are also capital, and are usually added to the lease costs.

There is no tax deduction for either of the above.

I am unsure about the lease as it may be hovering between a goodwill payment or an expense. Yes, I weould agree it would be clasified as an intangtible fixed asset and written off over the period of the lease as an expense. But that isn't capitalising the asset for capital allowances purposes which the original question was about.

Legal costs, I think is subject to discussion and being client supportive I would prefer to treat the cost as an expense that same financial year. Arguable maybe, but that is what I would be tempted to advise.

Of course legal costs in acquiring freehold premises would be added to the property value for fixed asset purposes but a lease - claim it and argue the point if HMRC take exception - which they are unlikely to do since there is less than 1 in 10 chance they would enquire into the accounts anyway.

And your last comment "no tax deduction for either"
Disagree, do what is best for the client and then use your accounting skills to force the tax authority to give in.
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Are you sure?

Im all for minimising clients tax bills but you cannot give them incorrect advice just beacuse they may get away with it!
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DFL

I am not sure, merely expressing an opinion.
And my opinion is that the potential questions may be arguable and my stance is invariably go with the clients best interests.
If you give HMRC an inch they take a yard, so don't give them a millimetre.
Always be professional yes, legal, of course, grey area - support the clients interests.

I am not an expert in this particular area and as stated was merely stating an opinion as to how I would view the situation and if faced with an HMRC enquiry I would be prepared to argue the case.
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I am unsure about the lease as it may be hovering between a goodwill payment or an expense. Yes, I weould agree it would be clasified as an intangtible fixed asset and written off over the period of the lease as an expense. But that isn't capitalising the asset for capital allowances purposes which the original question was about.

Legal costs, I think is subject to discussion and being client supportive I would prefer to treat the cost as an expense that same financial year. Arguable maybe, but that is what I would be tempted to advise.

Of course legal costs in acquiring freehold premises would be added to the property value for fixed asset purposes but a lease - claim it and argue the point if HMRC take exception - which they are unlikely to do since there is less than 1 in 10 chance they would enquire into the accounts anyway.

And your last comment "no tax deduction for either"
Disagree, do what is best for the client and then use your accounting skills to force the tax authority to give in.

If things are a grey area (not that HMRC usually see it as grey!) I am quite happy to claim it provided that proper disclosure is made, and the client is aware of a possible challenge by them.

I certainly don't see it as being in the interest of the client to claim things that I know are not tax deductible, and even less to rely on the chance of being enquired into as less than 1 in 10. I suspect that the local revenue office would soon cotton on to which agents are putting through dodgy claims, and that the odds against an investigation would shorten dramatically. I bet my other clients who got picked out would be really pleased, not to mention the insurers for fee protection.

Being client supportive does not, in my opinion, involve making claims for deductions that are known to be incorrect. I'm quite happy to continue doing it my way - if others see that as not acting in the best interest of the client, so be it. No doubt there are those out there who pick up work by claiming everything - they are welcome to it.
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Surely being "client supportive" means giving clients correct advice. Surely it means telling the client where the line is and seeing how close you can get to that line within the confines of the law. As David says, overstep the line and risk HMRC imposing penalties and interest on items in the accounts / rturns that have been incorrectly treated.

Regards.

David.
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DFL

I am not sure, merely expressing an opinion.
And my opinion is that the potential questions may be arguable and my stance is invariably go with the clients best interests.
If you give HMRC an inch they take a yard, so don't give them a millimetre.
Always be professional yes, legal, of course, grey area - support the clients interests.

I am not an expert in this particular area and as stated was merely stating an opinion as to how I would view the situation and if faced with an HMRC enquiry I would be prepared to argue the case.

Terry - To act in the best interests of the client would be to ensure that they are not exposed to HMRC by claiming expenses which they are prohibited from doing so - these legal expenses are not a grey area - they are black and white and could not be argued by the best of us.

The notion of 'best interest' by always going for the tax deduction is a very dangerous and short sighted one, for many reasons.
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I agree.

So who is saying that the legal costs in arranging this lease is not expensible in the year the expense was incurred?
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I agree.

So who is saying that the legal costs in arranging this lease is not expensible in the year the expense was incurred?


Apparently I can't post a link until I've made 15 posts

Look the the HMRC Business Income manual at BIM46415
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Have a look at this link Terry:

http://www.hmrc.gov.uk/manuals/bimmanual/BIM46415.htm
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Have a look at this link Terry:

http://www.hmrc.gov.uk/manuals/bimmanual/BIM46415.htm

I have looked and it states:
Fees incurred on the acquisition, improvement or elimination of an intangible right or facility of a capital nature are capital expenses.
Examples of assets, rights and facilities of a capital nature are:
Leases of business premises.

As stated I was expressing an opinion.
In view of the HMRC link I accept the legal fees should be capitalised with the lease premium and written off as expenses over the period of he lease.
Thank you, you learn a little each day.

The important point is that the original question can now be answered.

The lease premium and the solicitors costs should be capitalised as intangible assets and written off as expenses over the period of the lease and not claimed as capital allowances.
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