Asset - not classed as a annual investment, possibly depreciation, tax relief or maybe something else?

[bruce2357@gmai]

My accountant retired last year and I have decided to file my own company "micro" accounts direct with HMRC as my business accounts are relatively simple, but I have one issue I don't seem to be able to find a solid answer for, after scouring the internet for days. Hope someone can provide assistance.

We run a business from our home, and bought a wood log cabin through our ltd company (for 100% business use) costing 6K. Understanding we can't put this through the accounts as a annual investment allowance and noting this is not a typical brick building that would be covered by the 3% tax relief and the fact that this only allows for a small offset against company profits each year where as I'm hoping to offset as much as possible in the current/first year of the asset.

Would I be correct in making it a asset and depreciating it over time possibly 5-15 years, either, straight line or accumulated/accelerated?

I expect the cabin to last 15 years (no guarantee), but I would prefer to offset as much of the cost against the current financial year, can I use depreciation (suspect accelerated would be best here), is there a better way to offset the costs against the profit in one hit or a short as period as possible.

I'm sure this is a common situation with many of these building being erected around the UK for business purposes over the last 5 years.

 

[DWS]

You can depreciate it as much as you like but you will not get tax relief for it!
You can claim CA for the fixtures and fittings but not for the building itself, you should have taken advice before putting through the Ltd Co, probably would have been better off paying for it personally, is VAT involved?
Have you thought about that the Company now has a building on land owned by you?
So many other things to consider,
Business rates, mortgage if running a business, council tax, insurance, selling the house with a Ltd Co having a building in the garden and a lot more!

 

[bruce2357@gmai]

You can depreciate it as much as you like but you will not get tax relief for it!
You can claim CA for the fixtures and fittings but not for the building itself, you should have taken advice before putting through the Ltd Co, probably would have been better off paying for it personally, is VAT involved?
Have you thought about that the Company now has a building on land owned by you?
So many other things to consider,
Business rates, mortgage if running a business, council tax, insurance, selling the house with a Ltd Co having a building in the garden and a lot more!

Hi DWS, thanks for the reply.......

I was under the understanding that a depreciating asset "effectively" reduces the profit (if any) reported each year the asset depreciates, hence reducing the corporation tax bill? so if the asset is 10k and depreciates "straight line" over 5 years then for 5 years the profit figure will be reduced by 2k each year due to the depreciating asset?

I have no mortgages!

No VAT involved as not registered (less than 85K turnover).

Yes doing CA for fixtures and fittings i.e. heat pumps etc.

Commercial building on land owned by me - yes gone through all the council channels for planning building control business rates etc, all the appropriate insurances are in place and that section of land has been changed to commercial.

If i was to sell (currently no plans) the buyer could choose to keep the business side as is, or i can convert the land back to residential as needed and assuming the asset "cabin" depreciates to zero, or if not sell it as a remaining asset of the business

 

[DWS]

Hi DWS, thanks for the reply.......

I was under the understanding that a depreciating asset "effectively" reduces the profit (if any) reported each year the asset depreciates, hence reducing the corporation tax bill? so if the asset is 10k and depreciates "straight line" over 5 years then for 5 years the profit figure will be reduced by 2k each year due to the depreciating asset?

I have no mortgages!

No VAT involved as not registered (less than 85K turnover).

Yes doing CA for fixtures and fittings i.e. heat pumps etc.

Commercial building on land owned by me - yes gone through all the council channels for planning building control business rates etc, all the appropriate insurances are in place that section of land has been changed to commercial.

If i was to sell (currently no plans) the buyer could choose to keep the business side as is, or i can convert the land back to residential as needed and assuming the asset "cabin" depreciates to zero, or if not sell it as a remaining asset of the business

Depreciation gets added back for tax purposes so no tax relief on this.
You can’t sell the cabin if it belongs to the Company and the Company can’t sell the cabin if the land belongs to you.
As I said my opinion is the Company paying for the building was a wrong move!

 

[MyAccountantOnline]

My accountant retired last year and I have decided to file my own company "micro" accounts direct with HMRC as my business accounts are relatively simple, but I have one issue I don't seem to be able to find a solid answer for, after scouring the internet for days. Hope someone can provide assistance.

We run a business from our home, and bought a wood log cabin through our ltd company (for 100% business use) costing 6K. Understanding we can't put this through the accounts as a annual investment allowance and noting this is not a typical brick building that would be covered by the 3% tax relief and the fact that this only allows for a small offset against company profits each year where as I'm hoping to offset as much as possible in the current/first year of the asset.

Would I be correct in making it a asset and depreciating it over time possibly 5-15 years, either, straight line or accumulated/accelerated?

I expect the cabin to last 15 years (no guarantee), but I would prefer to offset as much of the cost against the current financial year, can I use depreciation (suspect accelerated would be best here), is there a better way to offset the costs against the profit in one hit or a short as period as possible.

I'm sure this is a common situation with many of these building being erected around the UK for business purposes over the last 5 years.

If the cabin has an expected life of 15 years I'd depreciate it over 15 years - do make sure you disregard (add back) the depreciation when you calculate your taxable profit or loss as its not allowable for Corporation tax purposes as DWS has already mentioned.

 

[bruce2357@gmai]

If the cabin has an expected life of 15 years I'd depreciate it over 15 years - do make sure you disregard (add back) the depreciation when you calculate your taxable profit or loss as its not allowable for Corporation tax purposes as DWS has already mentioned.

Hi MyAccountantOnline, thanks for chipping in

Confusing statement "disregard (add back)"

An example may help

If I had a profit of 10k (disregarding any depreciation to begin with)
And depreciation of 1k this year for a cabin (classed as a structure)
And depreciation of 0.5k this year for a washing machine (classed as plant and machinery - equipment)

would i :

a: calculate corporation tax "19%" on 10k, with the profit figure being 8.5k (10k-1k-0.5k)
b. calculate corporation tax "19%" on 8.5k (10k-1k-0.5k), with the profit figure being 8.5k (10k-1k-0.5k)
c. calculate corporation tax "19%" on 9.5k (10k-0.5k), with the profit figure being 8.5k (10k-1k-0.5k)
d. calculate corporation tax "19%" on 10k with the profit figure being 10k.
e. other?

clarification of this would be helpfull, cheers

 

[MyAccountantOnline]

Assuming no other disallowable costs or allowable costs which aren't in the Profit and loss account (eg Capital allowances, loss relief b/f etc) to be adjusted for it's - a)

 

[MyAccountantOnline]

Hi MyAccountantOnline, thanks for chipping in

Confusing statement "disregard (add back)"

An example may help

If I had a profit of 10k (disregarding any depreciation to begin with)
And depreciation of 1k this year for a cabin (classed as a structure)
And depreciation of 0.5k this year for a washing machine (classed as plant and machinery - equipment)

would i :

a: calculate corporation tax "19%" on 10k, with the profit figure being 8.5k (10k-1k-0.5k)
b. calculate corporation tax "19%" on 8.5k (10k-1k-0.5k), with the profit figure being 8.5k (10k-1k-0.5k)
c. calculate corporation tax "19%" on 9.5k (10k-0.5k), with the profit figure being 8.5k (10k-1k-0.5k)
d. calculate corporation tax "19%" on 10k with the profit figure being 10k.
e. other?

clarification of this would be helpfull, cheers

Accountants always refer to 'Adding back' disallowable costs and I thought that may be confusing hence stating disregard.

It's refering to the adjustments you make to get to the taxable profits - the profit (or loss) in the profit and loss is the starting point you then add to that ie add back disallowable expenses and deduct allowances etc which the company is entitled to which aren't in the profit and loss account to arrive at the figure on which tax is calculated.

 

[WaveJumper]

This is always why I say an accountant saves you more than they cost .......... and of course less sleepless nights

 

[DWS]

This is always why I say an accountant saves you more than they cost .......... and of course less sleepless nights

And hopefully from what is described here a good solicitor as well

 

[bruce2357@gmai]

This is always why I say an accountant saves you more than they cost .......... and of course less sleepless nights

Hi Wave/Jumper

Not always, and when its a small business with relatively simple accounts, it quite often pays to do them yourself direct via HMRC/companies house, saving a yearly accountants fee, you can also do your own and staff payroll very simply via HMCRs basic tools, but yes I agree there are some things best advised by an accountant if you can find a half decent one.

I have a relatively simple setup here, own everything out right, always go through the correct channels with local authorities etc, it was just this one issue I was trying to figure out, and how best to deal with it, I think I'm starting to get the grasp of it, and yes paying for an accountant may be a simpler way, but i have already come across a couple of accountants (some local and some big online ones) in the past that cant even do simple maths (looking at the accounts they drafted) hence me having to check their work and asking them to correct it, hence "trust issues".

 

[bruce2357@gmai]

And hopefully from what is described here a good solicitor as well

Hi DWS,

As you don't know the full situation comments like that aren't really that helpful.

 

[DWS]

Hi DWS,

As you don't know the full situation comments like that aren't really that helpful.

Yes you are correct I do not know the full situation, which makes it even more important that you pay for professional advice, this is not just a case of a simple yes or know answer, this may cost you a lot of money if you get it wrong, not just for the Company but also for yourself and any PPR, if you think that me suggesting getting a solicitor involved is unhelpful then apologies.

 

[bruce2357@gmai]

Yes you are correct I do not know the full situation, which makes it even more important that you pay for professional advice, this is not just a case of a simple yes or know answer, this may cost you a lot of money if you get it wrong, not just for the Company but also for yourself and any PPR, if you think that me suggesting getting a solicitor involved is unhelpful then apologies.

Hi DWS,

I see you point and maybe I wrongly took your suggestion negatively.

Yes PPR could trip me up if I come to sell!

Its a minefield of problems starting a business, and do wounder why anyone bothers starting a business these days with all the complexities, overheads & pits to fall down along the way.

Unfortunately previous accountants I have delt with just want to take your money and spit out a few figures (whether correct or not) and have had no desire "or knowledge" to provide the sort of advice you seem to hold and suggest.

 

[bruce2357@gmai]

I'm finding Chat GPT "Free online AI" very useful for producing a profit / loss & balance sheet based on my incomes, expenditures, assets, dividends and liabilities etc. to check against my own calculations, its also been useful to ask it to check for other consideration's on this topic too.

A good tool for anyone wanting to learn more!

Thankyou all for the time & responses given, I hope the thread is of use to others in the future.

 

[DontAsk]

Its a minefield of problems starting a business, and do wounder why anyone bothers starting a business these days with all the complexities, overheads & pits to fall down along the way.

It's actually very easy.

The problems and complexities occur when you do thing without thinking it through, or getting advice, first.

 

[eteb3]

Does the Ltd have a written lease agreement with the landowner?

If not that would be a good thing to consider: it probably has a lease already, in equity, so should the Ltd ever go bust that lease would be an asset of the company that the liquidator could dispose of to the highest bidder.

Sounds like you may be happy with that notion (per your comment on options for buyer if you were to sell the land), but I may also detect a less than razor sharp distinction in your mind between the Ltd’s directors and the landowner. The directors may even be in breach of duty to the company if there’s no written lease - which the current shareholders probably don’t mind, but a liquidator with duties to creditors may take a different view.

 

[Tables Force]

I'm finding Chat GPT "Free online AI" very useful for producing a profit / loss & balance sheet based on my incomes, expenditures, assets, dividends and liabilities etc. to check against my own calculations, its also been useful to ask it to check for other consideration's on this topic too.

A good tool for anyone wanting to learn more!

It all depends on what you ask (what 'prompt' you use).

If you don't ask the exact specific question as relevant to your situation, I would caution against relying on it (as it is known to hallucinate and make up case law/legislation to suit the answer it has previously given).

 

[Tables Force]

Deleted.

 

[curtisplumstone]

Hi DWS, thanks for the reply.......

I was under the understanding that a depreciating asset "effectively" reduces the profit (if any) reported each year the asset depreciates, hence reducing the corporation tax bill? so if the asset is 10k and depreciates "straight line" over 5 years then for 5 years the profit figure will be reduced by 2k each year due to the depreciating asset?

I have no mortgages!

No VAT involved as not registered (less than 85K turnover).

Yes doing CA for fixtures and fittings i.e. heat pumps etc.

Commercial building on land owned by me - yes gone through all the council channels for planning building control business rates etc, all the appropriate insurances are in place and that section of land has been changed to commercial.

If i was to sell (currently no plans) the buyer could choose to keep the business side as is, or i can convert the land back to residential as needed and assuming the asset "cabin" depreciates to zero, or if not sell it as a remaining asset of the business

You cannot claim the 3% Structures & Buildings Allowance which I think you are referring to if the cabin sits within the land you own by way of a residential property. As per the previous answer depreciation does not provide tax relief but capital allowances do for plant and machinery i.e. they are what HMRC allow in lieu of depreciation