My client has extended his garage and turned a part of it into an office for his new business.
I just want to clarify how best to record the transactions. There is the building work including the building of an interior wall, the plastering and painting etc which forms the building itself; but then there's the fixtures & fittings which is the carpet, the electrics and shelving and then the office furniture. Is it best to record these all separately in the accounts?
The garage forms part of the house which is owned by the director, so the building itself isn't owned by the company, so is this considered a refurbishment rather than an asset?
Oh dear, good luck with this one! Sounds like another director attempting to put an extension off against tax. Needs to be informed that there its capital expenditure on an the extension for which there are no capital allowances available and also it's also not an allowable expense so keep it well away from the P&L. Also there is going to be the tripple whammy that not only can they not put that off against tax (expense or capital allowance) but also if an extension has been built for business purposes then they will need to pay business rates and when they come to sell their house it will no longer be classified as purely residential so they will be expected to pay tax on profits of sale.
Basically....
Personally I would tell him that its a garage extension and keep it personal. The only things that I personally would be happy putting through the business would be furtniture, computer cabling, new computers, shelving, white boards, etc.
You don't mention what sort of business this is? Is it one that needs carpets for the business? i.e. I have a play therapist on my books that could legitimately justify a carpet for saftey reasons and even a sofa for the office. That would however be the exception, not the rule and I would certainly question the new axminster (or whatever floor covering it is) that they're attempting to put through... And also check the size of the carpet! You would be surprised how many attempt to redecorate their entire house under the guise of office refurbishment.
Just allways approach every scenario from the angle of, is this expenditure wholly, necessarily and exclusively for the purpose of the business and if you come away from that question not 100% sure then you can bet your bottom dollar that it wouldn't get past an HMRC visit. (there is some flexibility on the word "Necessarily" for companies where there is not for the self employed).
Also always remember the mantra "No capital allowances on structures" (it's much more complex than that but it's a good general start point unless you are prepared to do a lot of very dry reading on definitions, exceptions and case law.
The above is my approach but then I am Mr Draconian when it comes to erring on the side of caution for clients and others may have slightly more amenable responses where they could justify some additional expenditure.... Just never any part of the actual extension of the property itself as that is purely capital expenditure and, as discussed above, that doesn't work the way that clients tend to thik that it does.
Even though thats not going to be what your client wants to hear I hope that it helps as a start point.
Shaun.
__________________
Shaun
Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
But no doubt saves them a lot of hard earned cash when an HMRC inspection occurs.
Love the garden shed type scenarios - had the exact same discussion with someone the other day....only this one was my Dad when he was suggesting I convert my garage into an office!
__________________
Joanne
Winner of Bookkeeper of the Year 2015, 2016 & 2017
Thoughts are my own/not to be regarded as official advice,which should be sought from a suitably qualified Accountant.
You should check out answers with reference to the legal position
OK, that was a lot more complicated than I expected.
I'm going to post all the fixtures and fittings to the balance sheet and let the accountant sort that one out I think and separate the office furniture from that of the building work.
