With the recent news dominated by the sad death of the Queen and the self-inflicted economic mess that Liz Truss and Kwasi Kwarteng have created, there hasn’t been any significance news on the tax front, so I thought I would share with you some of the recent questions asked by clients and readers of the Blog.
This week’s selection:
- Can I claim for my garage as an office?
- Can I claim for new socks?
- Renovating a farmhouse
- Do I have to combine my businesses for VAT?
1. Can I claim for my garage as an office?
I am a plumber, working from home with two employees, plus my wife does the bookkeeping and office work. As we are desperately short of space in the house, I have fully converted our garage into an office, spending around £12k. Can I include the costs on my tax return?
The first question is whether the costs involved are revenue or capital spending. As the works are likely to last for years, I consider it to be capital spending which can be claimed as part of the Annual Investment Allowance, assuming there is no dual use. You do however have a potential CGT issue when you sell the property, especially if the conversion enhances the sale price of the house.
I’m a self-employed salesman and in my spare time, I’ve been investing in cryptocurrencies, bitcoin and the like. I regularly buy and sell different cryptocurrencies, largely for fun, but this year I have made a profit on my dealings and I’ve now been told by my broker that it will need to be declared on my tax return and my accountant will need to go through every transaction, some only for pence, to find out what my tax liability is. Is this absolutely necessary, as it’ll cost me a small fortune in additional accountancy fees?
Strictly speaking, your broker is correct; however if you visit :- https://koinly.io/crypto-taxes-uk/ this is a free tax software site and you can import all the transactions into their software to obtain an overall profit or loss. The software has been approved by the leading accountancy bodies and therefore should be acceptable to your accountant.
3. Can I claim for new socks?
I am a subcontractor specialising in digging trenches for building foundations. With our weather, it can be a dirty smelly job and despite wearing waterproofs, I’m forever replacing my socks, can I claim for them?
I have every sympathy with your situation and accept that the life of your socks is likely to be shortened by the work that you do, but the rules are clear, unless they are clearly workwear, you can’t claim for them.
4. Renovating a farmhouse
I am a full-time working farmer and am renovating the farmhouse which I inherited from my parents, who spent very little on it during the 40 years they lived there. The work involves a rewire, replacement of the plumbing (inc. central heating), bathroom, external windows and doors, all of which were rotten. As the building is classified as business premises by my Local Authority, can I claim back the VAT on the works to be done and write off the balance against my income?
The VAT is straightforward, HMRC have published guidelines stating that 70% of the VAT incurred on the work done can be claimed as input tax. However, Income Tax is not so clear cut, as the rules state that only the proportion of the costs that is attributable to the business use of a farmhouse can be allowed against farming profits. But how do you measure what is attributable? If HMRC accept 70% for VAT, then it follows that it should allow the same percentage for Income Tax.
5. Do I have to combine my businesses for VAT?
I’m registered for VAT for my limited company which sells beauty products to nail salons over a 50-mile radius and I use a double garage at my home for storage and distribution. I also have a small town centre hair salon which is run as a separate sole trader business and is not VAT registered. I’ve been told that because the admin for both businesses is done at the salon premises, that I may have to combine them for VAT purposes. If this is the case, it will make the salon unprofitable; do you have any suggestions?
You haven’t said where the limited company is registered, but if it’s the same address as the salon you may have a problem because of shared expenses, such as the rent and premises utilities, which can get messy. Personally, I would leave the salon as it is and as your beauty products business is based at your home, I would make that the company’s registered address which should solve the issue.