Allowable expenses – Am I going mad?

Hi Hamish,

I am hoping this is not the sort of thing HMRC are really trying to catch people out on.

Would it be possible to consider this a repair of the sink unit? Could your plumber not invoice you for a repair?

How is this an improvement ? There is a tap that is replaced by another tap for stated reasons. That is a repair. It would only be an improvement if there was no tap and now there is one.

Reply to the comment left by Neil Patterson at 19/03/2018 - 10:04
Neil,

I change the taps myself and save the cost of a plumber. So there is no invoice to say 'repair' which would have ultimately included new taps.

Given revenues are falling I fear common sense will be in short supply and HMRC will simply consider everything is capital.

The HMRC help for landlords campaign on youtube says:

'Here's an example where a landlord has a dripping tap. Where there is a like for like replacement of the tap washer this is allowable as a repair. But improvement of the asset beyond its original condition is not a repair. So if you have replaced an ordinary tap with one with a pull out spray head this would be capital expenditure and therefore not allowable'

I get the 'beyond its original condition' bit. But HMRC used the word 'repair'. This bothers me significantly. The implication being that anything other than a repair is likely to be interpreted as capital.

HMRC should have used words like 'where economically sensible to replace with as close to like for like as possible without improving thus maintaining high standards within the UK's rental housing stock and encouraging tenants to stay longer'.

Do I just patch the garage roof where it's leaking only to return next week to patch the next bit? Or can I make the sensible decision to re-felt what is ultimately a knackered roof?

Who defines 'original condition'? Is this the condition the landlord inherited the item or the condition when it was brand spanking new last century? Change the washer but do not use descaler to remove more than the original amount of limescale as this would improve the tap.

So the free standing dual fuel cooker broke. Well over 10 years old. Parts not available. The repair cost was to be greater than the cost of a new like for like replacement. But even the like for like replacement itself was more expensive than new separate hob and oven from curry's plus cabinet from ikea. Is this an 'improvement'? I have added no functionality, in fact there's fewer buttons. But I have prevented food from being dropped down the sides which could be considered a health hazard. I have also reduced the risk cost to me where the failure of either doesn't mean I have to change both. I have spent less than the cost of an allowable repair and therefore there is more profit to tax. I have saved the tenant some money as the oven cleaning bill can be deferred for a year and they are nice and smiley with the new cooking apparatus; more likely to stay which is what government wants. I have eliminated the gas hob, improved safety and reduced the cost of the annual safety checks ...

... I just predict future battles with HMRC.

Hi .

My wife owns a number of properties via her personal name and via ltd companies. i have (husband) been both employed by the company and as a employee (for properties in her own name) (paying NI and tax/registered with hmrc) during the last year managing the properties. I perform the same duties a letting agent charging 12% for full management would do.

Has anyone had any experience that my wife can use my wages as running cost for the company / expenses for the properties in her personal name.

She works and has no time to manage the portfolio.

regards sam

Some common sense needed here. You can make sensible improvements which will still count as repairs if the costs are reasonable such as replacing a rotting timber window frame with a replacement PVC one. This will often work out cheaper than having a bespoke timber one made. Similarly, you are not expected to try to track down a cast iron heat exchanger for an obsolete gas central heater boiler and virtually re-build the boiler when the obvious solution both for the landlord and the tenant would be to replace it with a new efficient condensing boiler.

It is a repair if you are replacing the taps with ones of similar value and like for like.

If you were to upgrade them to shiny gold plated then that would be an improvement, (unless that is what you have already) 🙂

Replace both at the same time, it is more economical. No doubt the second tap is similarly worn out so both taps count as repairs.

Reply to the comment left by SAM UK at 19/03/2018 - 11:28
Sam - yes you can. Its very technical though whether you are employed or self employed. You can use the IR35 HMRC status tool to establish this. The company can engage you on a commission basis or employed basis. Its all very specific circumstance based. Control exercised is a strong consideration.
As you already work for an individual and now a company (2 separate legal entities) unless your wife is telling you when to do the job, where and how - most likely self employed.

This is my rule of thumb:

If an asset is damaged when purchased, then any repair will be a capital improvement.

If an asset is in good working condition when purchased, then repair or like-for-like replacement will not be an improvement.

I assess like-for-like based on what is available today compared with what was available when I purchased the asset (as opposed to when it was made/built).

The classic examples are:
Double glazing, which can replace single because double is now the ‘norm’, and,
A condensing boiler, which can replace a non-condensing (which can’t normally be fitted now, anyway).

However, if I buy a house with single glazing and an old boiler, replacement of these items will definitely be capital improvements.

Have I got it right?

My accountant allowed me to claim for replacing the kitchen in one of my flats as it had come to the end of its useful life. The flat was otherwise OK. However, in a flat which needed to be completely renovated, he would not allow me to claim as I bought the flat in order to improve it, although I may be able to offset some of the expenditure when I sell the flat. To some extent it comes down to how your accountant interprets the rules.

That's exactly my understanding though. The kitchen Alan replaced in his existing buy to let is a revenue expense assuming it was like for like to the old kitchen (so no improvement) The property purchased that needed full refurbishment would be a capital expense even if there was no improvement as it was being re-furbished before the first let to enable the property to be let. Replacing a pair of taps on an existing buy to let would be a simple revenue expense (unless they were a significant improvement on what was previously there (more features or solid gold etc!)