Allowable expenses – Am I going mad?

Reply to the comment left by Ian Cognito at 19/03/2018 - 15:15
My understanding is if you need to replace items to make it suitable for first let, then the cost is capital. If you can or do let the property before replacing any items, then it is revenue.

Hamish, you write: "I can’t renew an aging tap that it is at the end of it’s useful life because that would be an improvement". I think you can provided you replace it with one of similar quality. The fact that the replacement is a modern tap (and therefore functions better than the old one) should not matter provided it is a reasonable replacement. As mentioned by others you can't put in a gold-plated one to replace a brass one. I suggest you change both taps and put it on the tax return as "Replacing defective taps" if you even go into that level of detail and leave it at that. If you have accountants, claim it and leave it to them to decide.

Just to clarify - in the instance of windows replacement with double glazing this can count as a repair even if the original windows were softwood with single glazing. This is because you would not comply with building regs if you replaced like for like.

Reply to the comment left by Puzzler at 19/03/2018 - 22:26
A flat I own in a grade II listed building in Hove needed a new Crittal window. Other owners had gotten into a huge faff about having to replace them with double glazed units which had the added complication of needing fake glazing bars as required by the conservation officer. (The panes were too small to have double glazed units.) The Crittal reseller I used pointed out that because the window was set into a wooden frame this did not need to have building control approval as it was a repair, not a replacement. This meant I could have a single glazed window and metal glazing bars, avoiding the need to involve building control or conservation.

I had understood that I would not be able to claim it back as an expense had it been double glazed but I avoided that argument altogether. However, I take your point and will remember that if the situation arises again, so thanks!

Reply to the comment left by Ian Narbeth at 19/03/2018 - 17:15
Hi Ian,

I think my point is that interpretation is all rather dependent on the person who goes through your receipts.

Some will be more appreciative than others and for those that are not any burden of proof would always be mine and possibly never satisfy. The layer of protection afforded by an accountant is probably thinner than we think but likely to make small accountant-less private landlords easier to assist when deciding what should have been capital.

Given the kitchen example in this thread, logically then, landlords must always let a house first (making sure it's safe of course) and then carry out 'end of useful life' repairs a discreet time later. A kitchen may last 10 years say. Replace after 1 year of letting - 90% improvement or like for like?

I struggle with the rule set as described and it's ability to cope uniformly and be applied fairly.

Hamish

Reply to the comment left by Hamish McBloggs at 20/03/2018 - 10:57
Hamish, I note your comments about accountants but I'd rather have my accountant on side and able to argue the point with HMRC. Your question was about replacing a faulty tap and spending £15 (cheap taps! but the point is the same even if they cost £40). Don't sweat the small stuff, as they say. I doubt HMRC will query such a small expenditure which may save you between £3 and £6.75 tax. If HMRC challenge it my attitude would be: HMRC, I disagree with you but I'm not going to argue about a few quid.

That's quite different from replacing a newish kitchen if it is still in good condition. That said, we replaced a kitchen and all the carpets in a 7 year old house because the previous tenants had hammered the place. No problem claiming the cost of replacement.

"£15 for a pair of reasonable new basin taps. Is the really a capital expense?"
I think the answer is "no".

That is because you are replacing them with "the nearest modern equivalent", and you are making a repair to the property, not replacing a stand-alone item, so it counts as a repair (revenue expense) for tax purposes.

Reply to the comment left by Ian Narbeth at 20/03/2018 - 11:30
Ian,

I was referring to changing a kitchen inherited when almost at the end of it's life but not changed before the first tenancy (capital) and made to struggle along into a tenancy thus becoming a repair (hammered).

Though I completely sympathise with the need to replace the kitchen and carpets after a hammering. I had to do the same last year. The cooker and worktops had been subjected to unusually harsh use ... and then the garage roof springs a leak. It's all go.

So for this year the profit will be much lower; hence my concern. It won't be the first time I get a letter asking where the rest of the money is.

Anyway, wouldn't saying 'HMRC, I disagree' and then coughing set a precedent with your local compliance officer? I agree with you're implication that there are more important things (like the pub). However that makes 2 of us and I can see the statistics now ... 99% of landlords think £15 taps are capital ... why should you be different? Please pay.

atb

Hamish

If the replacement tap is the modern equivalent of the old tap then it is repairs. If it is an enhancement then it is capital.

Per HMRC manuals PIM2030

"...the cost normally remains revenue expenditure where any improvement arises only because the customer uses new materials that are broadly equivalent to the old materials."

I always thought ‘replacement by its modern equivalent’ is not improvement - be it taps, kitchens or windows, roof or flooring. The operative words r ‘modern equivalent’.
I also thought common sense should be the order of the day. Unless the amount is large enough to be significant, why argue ? The administrative night mare will cost more than £15.