Claim Tax and vat on Xbox, Playstation 3, projector etc?

[scribblesvurt]

Hello,

I am starting a small training company that will be training KS4 students in ICT. The young people that I work with have difficulty engaging with mainstream education for a variety of medial reasons and I will be trading as a Sole Trader in my own sole use premises.

I need quite a lot of equipment to start out like computers, projector, large LCD screens. I am also looking to get some games consoles and possibly a pool table to use during breaks and as an incentive to get the students to do some work! Will I be able to claim these as Tax deductible and claim the VAT back if I am VAT registered?

I don't have an accountant yet but will defo need one!

Any help much appreciated.

[weebly_one]

If you are VAT registered and buy items for the sole use of your business you would be able to reclaim the VAT on them. This is especially so if these items are in a premises only used by the business.

[spidersong]

However, if you're a self employed teacher, most (or all) of your supplies will be exempt from VAT (Under Item 2 of Group 6 to Schedule 9 of the VAT Act 1994).

This means you either cannot register for VAT, or if you do register the restrictions on recovery of VAT will mean you can recover very little of any VAT charged to you.

So any VAT deductions are unlikely to happen.

[Ray Coman]

You are not allowed to reclaim VAT on client entertaining. Neither would entertaining be allowed as a deduction from profits for income tax/ NI purposes.

[spidersong]

I'd argue whether this is client entertaining.

O.K. in a purely semantic sense he's providing entertainment to clients but he's not giving potential or existing clients a 'freebie' he has a class of students who have had fees paid to receive education and as part of those classes he provides suitable(?!?!) breaks and leisure facilities to encourage their learning.

I'd argue that the provision of the games consoles etc. is part of his overall business provision. I'm assuming that people off the street won't be able to come in and use them, so the scenario is basically no fee, no play! This doesn't bespeak business entertainment to me otherwise no arcade or cinema could be seen to be in business, and no pub would be able to claim back on dart boards, stereo systems, or BPI licenses for their radios.

[Zeno]

The big question might be what happens to these items when you are not tutoring.

[Ray Coman]

No, I can't let you have that.

To my mind this is entertainment not education:

See HMRC Guidance.

http://www.hmrc.gov.uk/manuals/bimmanual/BIM45012.htm

[Jenni384]

I'm with Spidersong on this one.

The 'entertainment' is only there as a tool to help the students learn by the means of addressing their attention spans; it is not there to give them something to do on their lunch break. As long as the equipment is only available to the students, I can't see that BIM45012 applies.

However, it's a moot point as far as the VAT goes - also as Spidersong says it's provision of education so it's unlikely VAT could be claimed back.

I'd be happy to allow the costs in the tax comp though, for reasons stated above. I can see an inspector disliking it should they look into it, but I'd be very happy to argue the point.

[Zeno]

I agree. It seems broadly analogous to the TV in the doctor's waiting room. It's purpose may be entertainment but this does not amount to entertaining in the same sense.

Much of it does hinge on what happens when not tutoring though. I had the idea from the fist post that this was in the OP's house but I see he is talking about his own premises.

[Ray Coman]

The children are paying to be educated not entertained. If my tax training provider took me to the casino, there would not be a tax deduction allowed for this.

[Zeno]

The children are paying to be educated not entertained. If my tax training provider took me to the casino, there would not be a tax deduction allowed for this.

Very different circumstance though Ray. No-one is being taken anywhere (and the tight arsed geeks at FTC probably wouldn't go anyway).

The facilities are being provided in much the same way as toilets, tables (possibly canteen facilities) would be to facilitate the service given.

I do agree that the OP has probably got it wrong and that it should be if the little brutes don't work then they get belted like when I was a lad but that's not the point.

[Jenni384]

The children are paying to be educated not entertained.

But they have special educational needs. That is the crux of why the playstation etc may be allowable. It's not about providing entertainment, it's about facilitating learning. People with different needs require different stimuli.

[GaryMc]

You could argue that you pay for the course but the use of the console is thrown in for free. In which case you can then argue that the total cost includes an element that relates to console use and you then fall under BIM 45065

[yorkshirejames]

I agree. It seems broadly analogous to the TV in the doctor's waiting room. It's purpose may be entertainment but this does not amount to entertaining in the same sense.

Much of it does hinge on what happens when not tutoring though. I had the idea from the fist post that this was in the OP's house but I see he is talking about his own premises.

I'm not altogether sure whether we are talking (as per Jenni's post) about stimuli for kids with Special Educational Needs or about equipment for the common room or about some of both.

I think I agree with both Jenni and Zeno. The doctors' waiting room analogy is a good one, in my opinion.

Maybe in reality the OP will once a month invite his mates around to his business premises and spend the evening drinking company provided coffee and playing racing games on this PS2 - but that wouldn't change my personal opinion.

[Zeno]

I'm not altogether sure whether we are talking (as per Jenni's post) about stimuli for kids with Special Educational Needs or about equipment for the common room or about some of both.

I think I agree with both Jenni and Zeno. The doctors' waiting room analogy is a good one, in my opinion.

Maybe in reality the OP will once a month invite his mates around to his business premises and spend the evening drinking company provided coffee and playing racing games on this PS2 - but that wouldn't change my personal opinion.

I must admit that I didn't get the same sense as Jenni that the equipment will be used as a teaching tool, but as a facility when on breaks and such.

I was getting my car serviced at the weekend and the garage had a computer with free internet access, tea/coffee & a games console for the use of the waiting customers.

I hold the view that such features form part of the facilities of the garage in providing their service. There is no cost to the customer of it and it is unlikely by itself to influence the consumer. I did not get my car serviced their because of this but it certainly improved my experience.

[Ray Coman]

Whether a facility is defined as entertainment must be related to client expectations. There is an expectation that free magazines and television may be provided in a dentists' waiting room. There is not an expectation that my bank manager will take me out to lunch. It is not an industry standard and so cannot be thought to be included in the fee or commission payable. My, perhaps outdated, understanding was that parents would not expect schools to be providing Playstations and XBoxes as part of the fee.

At certain fee paying schools, practically every additional expense is recharged to the client. Perhaps, recharging these expenses or itemising them on a bill, is the safest way of ensuring that they are allowed as tax deductible expenses.

[Zeno]

At certain fee paying schools, practically every additional expense is recharged to the client. Perhaps, recharging these expenses or itemising them on a bill, is the safest way of ensuring that they are allowed as tax deductible expenses.

I am not sure the OP is even reading these posts now but it's an interesting debate anyway (quite sad when you think about it).

What exactly would you propose that the OP charges for in this respect? (Been taking a leaf out of O'leary's book?) Can't see "10 minutes on Modern Warfare £5" going down too well with the fee payers.

[Ray Coman]

I'm guessing the invoice could contain an item description like:
Console facility usage

[yorkshirejames]

Would others agree that there is a distinction between amenity facilities provided in a building for anyone to use (xbox in a reception area/canteen area), and entertainment that is specifically provided for a particular person/particular purpose? On/off premises may well be another way to draw the distinction.

[David Griffiths]

Would others agree that there is a distinction between amenity facilities provided in a building for anyone to use (xbox in a reception area/canteen area), and entertainment that is specifically provided for a particular person/particular purpose? On/off premises may well be another way to draw the distinction.

I'd agree with the interpretation that the provision of this equipment is an amenity and not entertainment.

Draw a parallel with catering arrangements. If you take a customer, or prospect, out to lunch that's generally entertainment. If you are running a course, in house or at a hotel, the provision of lunch for the delegates is not entertainment.

I'd also make a fairly confident guess that the students are not the actual customer and that the fees are paid by the local education authority or similar body.

[Zeno]

Would others agree that there is a distinction between amenity facilities provided in a building for anyone to use (xbox in a reception area/canteen area), and entertainment that is specifically provided for a particular person/particular purpose? On/off premises may well be another way to draw the distinction.

I am afraid that I still don't see it as entertainment. Yes, the consoles provide entertainment but in the same way as reading a magazine while waiting on the quack or using t'interweb while the grease monkeys fleece you (if you can compare reading "Good Housekeeping" to shooting Commie-Nazis on a PS3). It is simply a convenience offered that I would argue is not totally outwith of expectations or reasonableness given that we are talking about the training of children/young people. The course by it's nature must have breaks for lunch etc and it seems that it is part of the business for the company to provide something for them to do.

I would imagine that as the OP is talking about his own premises somewhere it is likely that we are talking about a unit in an industrial or commercial area. Not much for the brats to do assuming that they are allowed the leave the premises as some parents may not like that idea.

[Jenni384]

if you can compare reading "Good Housekeeping" to shooting Commie-Nazis on a PS3

The former isn't entertainment, it's torture. ;)

[Zeno]

The age old question with magazines in Doctors, Dentists waiting rooms is always who read them first. If they are there for the patients then why do they so often seem to reflect the doctor's interests?

I am almost certain that the little, old ladies & kids in have little interest in performance cars or flyfishing...

[scribblesvurt]

Wow, can't believe my original question has sparked so much debate! To add some details:

My business runs two aspects, one side is providing IT repair services, which included repairing games consoles, and one side is an education provision, Personal and social development as well as ICT.
I understand that some people will say that the consoles are for entertainment not just as a tool to engage the Young People but they will also be used to teach how to perform repairs and trouble shoot networking problems.
I can't teach how to network a Wireless N connection with an xbox 360 using ICS (Internet Connection Sharing) without the xbox 360. This should then be a business expense right?

I know nothing about Tax and accounts and am quite spooked out that you experts don't agree on the situation either! If I were to submit the cost against my Tax and HMRC didn't like it what would be the repercussions? Would my tax bill just increase or would their be fines involved?

Thansk,

Sam

[Jenni384]

Wow, can't believe my original question has sparked so much debate! To add some details:

My business runs two aspects, one side is providing IT repair services, which included repairing games consoles, and one side is an education provision, Personal and social development as well as ICT.
I understand that some people will say that the consoles are for entertainment not just as a tool to engage the Young People but they will also be used to teach how to perform repairs and trouble shoot networking problems.
I can't teach how to network a Wireless N connection with an xbox 360 using ICS (Internet Connection Sharing) without the xbox 360. This should then be a business expense right?

I know nothing about Tax and accounts and am quite spooked out that you experts don't agree on the situation either! If I were to submit the cost against my Tax and HMRC didn't like it what would be the repercussions? Would my tax bill just increase or would their be fines involved?

Thansk,

Sam
I think you've got a good case for arguing it's business expenditure. You'd have to have a policy in place somewhere that says it's for business use only and that there is no private use of the games consoles, nothing to suggest that you might use them yourself (or let your friends over one evening).

The reason we can't all agree on it is because tax law is subject to interpretation.

Best case scenario, you get an accountant who agrees it's business expenditure (and I think the majority of us here concurred that you have a reasonable argument in favour), HMRC never enquire into your affairs, and that's the end of it.

If they did enquire (unlikely but always a possibility), then either you'll get a fair inspector who, on the basis of the facts and on the well articulated reply of your accountant, agrees that it's allowable. Alternatively you get a particularly stubborn inspector who can't see past the fact that it's a games console and won't allow it. In this case you can either take it to court, or pay the extra tax. The extra tax would be the tax that would have been paid had the expenditure been disallowed originally, plus interest. Penalties depend on what criteria the inspector decides that the 'error' fell under. See here (http://www.hmrc.gov.uk/about/new-penalties/)for more.

Bear in mind if a piece of equipment is under £3-500 then you can just expense it, you don't need to capitalise it and claim depreciation/capital allowances.

[yorkshirejames]

In this case you can either take it to court, or pay the extra tax. The extra tax would be the tax that would have been paid had the expenditure been disallowed originally, plus interest. Penalties depend on what criteria the inspector decides that the 'error' fell under. See here (http://www.hmrc.gov.uk/about/new-penalties/)for more.

Go to court if this happens - the inspector would be silly not to realise that this is genuine business use (as you say, you can't repair an X box without having an Xbox - its like disallowing an accountant to buy a laptop on the basis that he could use it for games/msn in addition to spreadsheets).

Bear in mind if a piece of equipment is under £3-500 then you can just expense it, you don't need to capitalise it and claim depreciation/capital allowances.

If you don't understand this comment of Jenni's then don't worry about it. She is fully correct, but this need not concern you.