Capital or Expenses?

[janearmstrong1987]

My accountant is really funny about me putting anything in "expenses, repairs and renewals etc" unless it's a cheap item. We had a LOT of building work done (mostly repairs but some new structures too). I have put most of the materials i.e. blockwork, sand, cement etc as 0010 freehold property as these increase the value of the property (this is what my accountant says I should do) but the builders sent us bills totaling about £30k..he says this has to go into capital also and not in my P&L sheet. My question is that these invoices are labour only, not materials. Surely labour costs must go in somewhere else and not 0010? One company could do the work and charge £5k, another company could do the same work and charge £20k - surely invoices for a persons precious time should not be in the balance sheet. Can anyone tell me am I wrong or where should I be putting work for builders, plumbers, engineers if they are NOT doing repairs but installing new fittings?

 

[janearmstrong1987]

.

 

[STDFR33]

You need to ask your accountant to further explain if you do not understand why they are asking you to do this.

The bookkeeping may or may not be sound. But your accountant is the one that has access to all the information, and it is them getting paid to provide you with advice and support.

 

[MyAccountantOnline]

...Can anyone tell me am I wrong or where should I be putting work for builders, plumbers, engineers if they are NOT doing repairs but installing new fittings?

Generally if you are incurring capital costs you'd show them on the balance sheet but your accountant is the one who is best placed to advise you as he/she will have all of the necessary information.

 

[webgeek]

And if you don't like the approach or explanation, get a 2nd opinion and possibly a new accountant.

Years ago, we replaced our partnership Chartered Accountant from a small town who had been doing things the same way since the Pleistocene Era. The switch to a modern, savvy, accountant cost us the same in accounting fees but saved us tons because they learned about our business, looked at our financial history and did things like switching to cash accounting, etc.

 

[NRLtd]

Stepping back from whether or not your accountant is giving the correct advice, the nature of the cost (e.g. labour vs. material/physical items) is not usually the deciding factor. The issue to consider was whether or not the cost was incurred in relation to creating or obtaining a capital asset. Different service suppliers may charge different values, but that's usually irrelevant - besides, suppliers of materials may also charge varying amounts.

All costs associated with a capital asset should be aggregated if they can be assigned with a reasonable level of accuracy. At the end of the day (aside from revaluations) the accounts should reflect the total cost of the asset to the business - materials, internal and external labour, legal and other professional costs etc. When buying something discrete like a piece of factory machinery, it's usually straightforward to ascertain the cost, when constructing an asset from parts this can be more convoluted but should still include all relevant costs.

 

[The Byre]

Wot @NRLtd said!

A brickie repairing a wall is different to a brickie building a wall. Both cases require bricks and mortar and in both cases, the work is exactly the same - but the purpose of the work is fundamentally different. One is maintenance, the other is asset creation.

 

[Yury Demidenko]

You should do it according the law.
Official site gov uk "Claim capital allowances"(I can't insert link) saying that:
"...costs of demolishing plant and machinery
parts of a building considered integral, known as ‘integral features’
some fixtures, eg fitted kitchens or bathroom suites
alterations to a building to install other plant and machinery - this doesn’t include repairs
Claim repairs as business expenses if you’re a sole trader or partner - deduct from your profits as a business cost if you’re a limited company..."

Expenses if you're self-employed:
"Costs you can claim as allowable expenses
These include:
office costs, eg stationery or phone bills
staff costs, eg salaries or subcontractor costs"
subcontractor - who doing repairs or installing.

Mail or call HMRC for question like "When and how much I can deduct my tax with subcontractor's labour cost for repairs/installing".

 

[STDFR33]

You should do it according the law.
Official site gov uk "Claim capital allowances"(I can't insert link) saying that:
"...costs of demolishing plant and machinery
parts of a building considered integral, known as ‘integral features’
some fixtures, eg fitted kitchens or bathroom suites
alterations to a building to install other plant and machinery - this doesn’t include repairs
Claim repairs as business expenses if you’re a sole trader or partner - deduct from your profits as a business cost if you’re a limited company..."

Expenses if you're self-employed:
"Costs you can claim as allowable expenses
These include:
office costs, eg stationery or phone bills
staff costs, eg salaries or subcontractor costs"
subcontractor - who doing repairs or installing.

Mail or call HMRC for question like "When and how much I can deduct my tax with subcontractor's labour cost for repairs/installing".

HMRC's quality of tax advice is questionable.

Their advice on accounting treatment is non-existent.

 

[Yury Demidenko]

If they answer "it's expense (allowance)", that means it's not asset, move it to expenses

 

[Yury Demidenko]

In other countries it may includes into asset (property) and became expense as part of deprication

 

[Yury Demidenko]

But if you are about real accounting (in market costs) then for example:
you bought building_a for 10000 and make renovations for 5000
1. building_a cost in real market become 17000, so it's part of asset(capital) and you should report in balance:
assets.building_a 17000
profits.gain of building_a 2000
2. building_a cost in real market become 14000, so it's part of asset(capital) and expenses and you should report in balance:
assets.building_a 14000
looses.lose cost of building_a 1000

It's depends of accounting standard that you choose and of "who do you report your balance"

 

[SteveHa]

As a general rule, any work which simply restores a standard (i.e. replacing a worn bathroom suite with a like for like replacement) will be revenue expenditure. Replacing a worn plastic bathroom suite and tin taps with a marble suite and gold taps would be improvement, and so capital expenditure.

NB. Like for like can generally be taken to be "modern day equivalent" where a replica is no longer available. For example, replacing worn single pane windows with the modern double glazed equivalent would be treated as revenue.

 

[Yury Demidenko]

Assume you are selling your car and buyer ask you to take it fuel, and he pay you additional for this fuel, so even fuel in this case is asset(capital), not loss(expense).

The main accounting rule:
Assets(Capital) - Liabilities = how much your business cost (you can sold it)