Allowable cost?

JodieR
JodieR Registered Posts: 1,002
Client is a historian - makes a living from re-enacting battles etc, lecturing at university and writing books. he's had 2 custom bookshelves made for £1400 and is trying to claim for them in his accounts. They are free-standing but have been built to go in his hallway, not his office.
This is alright to claim AIA on isn't it?
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Comments

  • Dean
    Dean Registered Posts: 646
    I think the answer has to be a purpose of duality therefore no, they aren't allowable.

    The word "custom" lends itself to personal choice - end of argument?

    Regards

    Dean
  • ademoore
    ademoore Registered Posts: 146 ? ? ?
    I'm with Dean on this one!
  • PGM
    PGM Registered Posts: 1,954
    I'm always wanting to argue in favour of allowing costs like these... It must be the K2 admirer coming out in me.

    If you're a business and you want shelves, you buy them and recognise the cost. Where does it say the business should get a good deal on its purchases? you could argue the cost is in line with the value of the books it will hold, and its worth paying the extra to get the custom size to match the books?
  • Dean
    Dean Registered Posts: 646
    PGM wrote: »
    I'm always wanting to argue in favour of allowing costs like these... It must be the K2 admirer coming out in me.

    That's because your an immoral pig and you should be put in the stocks and stoned in public! :laugh:
    If you're a business and you want shelves, you buy them and recognise the cost. Where does it say the business should get a good deal on its purchases?

    They're being installed in his hallway not the office. All of which I presume are in his home!

    While its not written in stone from an economic perspective are you really going to spend £1,400 on bookshelves when you could quite easily knock something up with a few bits of 4 x 2 to do they same job?
    you could argue the cost is in line with the value of the books it will hold, and its worth paying the extra to get the custom size to match the books?

    While you could try to argue the 'materiality' aspect with the books - does that really hold that much substance - I mean, really!

    Regards

    Dean
  • JodieR
    JodieR Registered Posts: 1,002
    I've not asked the client yet whether they're used soley to hold books relevant to his work, but I've been doing his accounts for a few years now and he has purchased a LOT of books for the business, and he's been doing this work for over 30 years now so I assume that his collection is substantial enough to take up these shelves.

    Assuming that they are used 100% for business books, do you think that the duality element would still come in as the extra money was spent so that the hallway looked 'cosmtically pleasing'?
  • PGM
    PGM Registered Posts: 1,954
    Dean wrote: »
    That's because your an immoral pig and you should be put in the stocks and stoned in public! :laugh:

    You're just jealous of the new Beemer I got instead of paying my taxes! :D

    They're being installed in his hallway not the office. All of which I presume are in his home!

    So in effect he's allowing his business to use more of his home, maybe insisting the furniture is pretty is reasonable, instead of trying to charge a higher proportion of house as office space?

    While its not written in stone from an economic perspective are you really going to spend £1,400 on bookshelves when you could quite easily knock something up with a few bits of 4 x 2 to do they same job?

    Very very true, but whats the argument, duality of purpose or spending too much?
  • Dean
    Dean Registered Posts: 646
    JodieR wrote: »
    Assuming that they are used 100% for business books, do you think that the duality element would still come in as the extra money was spent so that the hallway looked 'cosmtically pleasing'?

    Do any of his 'customers' see this cosmetically pleasing bookcase - or is your client the only one that derives the "benefit"?

    What is to stop him moving this free-standing bookcase - lying it on it's side and using it as a workbench or putting it in the living/dinning room and putting ornaments and such like all over it?

    Are the bookcase's cosmetics in keeping with his business interest or more designed towards his personal tastes?

    If you were a tax inspector looking around his home - what would you be thinking?

    Regards

    Dean
  • Dean
    Dean Registered Posts: 646
    PGM wrote: »
    You're just jealous of the new Beemer I got instead of paying my taxes! :D

    This is true!
    So in effect he's allowing his business to use more of his home, maybe insisting the furniture is pretty is reasonable, instead of trying to charge a higher proportion of house as office space?

    That's a another aspect altogether.
    Very very true, but whats the argument, duality of purpose or spending too much?

    Both!

    Regards

    Dean
  • PGM
    PGM Registered Posts: 1,954
    I'd like to step out of the argument at this point, and leave it to you tax people :D
  • Dean
    Dean Registered Posts: 646
    PGM wrote: »
    I'd like to step out of the argument at this point, and leave it to you tax people :D

    Ha. You started this moral horse! After recent press I'm not sure who will eventually come out worse off - these 'unsuspecting' individuals for their tax advisor's!

    Regards

    Dean
  • Monsoon
    Monsoon FMAAT, AAT Licensed Accountant Posts: 4,071 ? ? ?
    Dean wrote: »
    While its not written in stone from an economic perspective are you really going to spend £1,400 on bookshelves when you could quite easily knock something up with a few bits of 4 x 2 to do they same job?

    That's irrelevant. If they are wholly and exclusively for work books, then I would suggest they are allowable.

    I could have a cheap sh!t computer at work, but I choose to buy a better one. I could have an ugly meeting room table, but I choose to have a nice one. Choosing something more expensive, even if not 'necessary' is still allowable. It's wholly and exclusively only, not wholly, exclusively and necessarily. The necessarily is for employee reimbursed expenses only.

    Hallway doesn't mean non-business. He could have that part of the hallway for business use, same as the office was. Maybe the office wasn't big enough.

    If he is self employed, I would split the cost based on % work books and % personal books. That's a fair manner of apportionment. It's his office/ business premises, he can decorate it as nice as he wants.
  • Monsoon
    Monsoon FMAAT, AAT Licensed Accountant Posts: 4,071 ? ? ?
    JodieR wrote: »
    Assuming that they are used 100% for business books, do you think that the duality element would still come in as the extra money was spent so that the hallway looked 'cosmtically pleasing'?

    Definitely not.

    As per my previous answer, my office looks nice, and it's 100% allowable. Business does not have to = crap looking furniture. My telephone is aesthetically pleasing. I don't put that on my P11D ;)
  • Dean
    Dean Registered Posts: 646
    Monsoon wrote: »
    That's irrelevant. If they are wholly and exclusively for work books, then I would suggest they are allowable.

    From an economic perspective how is this irrelevant?

    From an allowable/non-allowable tax perspective I agree it's irrelevant.
    I could have a cheap sh!t computer at work, but I choose to buy a better one. I could have an ugly meeting room table, but I choose to have a nice one. Choosing something more expensive, even if not 'necessary' is still allowable. It's wholly and exclusively only, not wholly, exclusively and necessarily. The necessarily is for employee reimbursed expenses only.

    Are you trying to justify this to me or yourself? In any event you're still missing the duality of purpose:
    Dual-purpose expenditure is expenditure that is incurred for more than one reason. If one of the reasons is not for business purposes, the expenditure fails the statutory test and there is no provision that allows a ‘business’ proportion.

    From the HMRC website HERE
    Hallway doesn't mean non-business. He could have that part of the hallway for business use, same as the office was. Maybe the office wasn't big enough.

    As I said, this is a different thing. The issue is; is this object allowable for tax - not where it's positioned.
    If he is self employed, I would split the cost based on % work books and % personal books. That's a fair manner of apportionment. It's his office/ business premises, he can decorate it as nice as he wants.

    You can't apportion because there is duality of purpose. Ultimately it's a bookcase that is at home. It's been custom made, it has been made to look pretty etc. etc. If he stops in business today, burns all his books he can still make sure of that bookcase, in his home! His "intention" might well be one of business but there is absolutely no question that this can be used at a later date for private purposes.

    Shall we move on; is there an incidental benefit? They fact that it's at home and it's in his hallway and he's had it custom made suggests there is far more than "incidental benefit" wouldn't you agree? Again, from the link above.

    Regards

    Dean
  • Dean
    Dean Registered Posts: 646
    Monsoon wrote: »
    Definitely not.

    Definitely wrong then. His initial intention might well be that of 100% business books - he then spent money making it look cosmetically pleasing in his hallway. There is a second purpose - caught by duality and therefore not allowable.

    Regards

    Dean
  • Monsoon
    Monsoon FMAAT, AAT Licensed Accountant Posts: 4,071 ? ? ?
    Dean wrote: »
    From an economic perspective how is this irrelevant?
    I wasn't aware that enconomics came into it - I may have missed something.
    From an allowable/non-allowable tax perspective I agree it's irrelevant.
    Ta - this was what I was on about.
    Are you trying to justify this to me or yourself?
    I'm not trying to justify it to anyone. Just pointing out that on a general basis, there is no obligation to buy something cheaper if you want something more expensive.

    I suppose my logical argument is that there is no dual purpose.
    Ultimately it's a bookcase that is at home. It's been custom made, it has been made to look pretty etc. etc.

    I understand that this is a very pretty, very expensive book-case. If I had a home-office, wholly for work, and I chose a really posh bespoke desk instead of going to Ikea, that would be allowable. Businesses spend fortunes on really posh looking offices - have you been to AAT HQ?
    If he stops in business today, burns all his books he can still make sure of that bookcase, in his home!
    Absolutely. But he would pay a balancing charge on disposal at the Market Value at the time. Until that happens, it's an asset being used in the business.
    His "intention" might well be one of business but there is absolutely no question that this can be used at a later date for private purposes.
    Agreed. However the tax laws provide for this by way of a balancing charge.

    They fact that it's at home and it's in his hallway and he's had it custom made suggests there is far more than "incidental benefit" wouldn't you agree?

    No, I can't agree. I want to, you set out a logical argument, but my interpretation of the rules differs from yours. The example they cite is the chap going to an exotic location on a business trip. I would call being in an exotic location more than on a par with a posh bookshelf, and HMRC would allow the business trip.

    I acknowledge that the bookshelf is more expensive than Ikea because it's been designed for him. I just don't think "I like it" is sufficient to prove duality of purpose. He didn't spend separate money making it look cosmetically pleasing, he just bought an expensive bookshelf. That was my point about my liking a lot of things in my office. Just because I enjoy something related to my work, does not automatically give it a duality of purpose. Because we choose Farrow & Ball paint instead of B&Q Magnolia, because that is personal preference, does not give rise to a personal benefit on the uplift in paint price.

    I'm really happy to be proved wrong on this one, but as yet, I don't feel I have been.

    I am sure a tax inspector would prefer your point of view, but I really can't agree with you on this one.

    NB: my office is Dulux Magnolia, for the record! :lol:
  • PGM
    PGM Registered Posts: 1,954
    You can interpret rules in different ways, but I'm with Monsoon on this one.

    I just don't see the cost and looks of the shelf being relevent.

    The only issue is location, but his office is at his home, and it's (we think) being used 100% for business purpose.

    NB: my office is also Dulux Magnolia, and when the builders skimmed our house, I got them to paint it all Dulux Magnolia. We've moved house and I'm banned from any further colour selection...
  • Bluewednesday
    Bluewednesday Registered Posts: 1,624
    I must admit, I think it would be allowable as would any other office furniture, methinks our Dean is doing a bit of devils advocate here!!!
  • jamesm96
    jamesm96 Registered Posts: 523
    Monsoon wrote: »
    That's irrelevant. If they are wholly and exclusively for work books, then I would suggest they are allowable..

    Yeah I'm on this side of the line, it doesn't matter that it might not have been necessary to spend this much as the 'necessity' of an expense only matters for employees incurring expenditure in the course of their employment.

    I'd even say that the fact that he's put the bookcase in the hallway (thereby using a portion of his hallway for business purposes) suggests that he should slightly increase his 'Use of Home' expense. :001_tt2:
  • Dean
    Dean Registered Posts: 646
    Whilst it doesn't matter what the costs are, the economic reason is this; ask the client if he would have still spent £1,400 on a bookcase if it was NOT in his home. This will tell you the underlying reason of whether it is a business or personal expense.

    You cannot claim expenses for clients' that are just trying it on. Talking to a client tells you a lot. I bet his primary reason for spending £1,400 on a bookcase is to enhance his home 'experience' and the secondary reason being "I'll stick my work books on it and put the expense claim in" - see what happens.

    If the client can look you in the eye and tell you the sole purpose was to house his work books and for their protection/preservation I will start to buy into the argument of allowing the expense and gloss over the fact he will be the only one acquiring its aesthetic benefit.

    Sorry no devil advocate this time from me.

    Regards

    Dean
  • jamesm96
    jamesm96 Registered Posts: 523
    I think the mental image I have of a historian who generates a living for himself by re-enacting historic battles is one of a person who probably would have put that kind of a bookcase in the corner of his office. Having never met the chap, though, I could well be completely wrong.

    I would say (not to sound too self-contradictory here) that an inspector would probably make exactly the same argument that you have and I guess the weight of that argument would depend on whether or not the furniture and fixtures inside his office are of a similar quality; if they are then it's difficult to argue that he only bought such a high quality case to enhance his home.
  • PGM
    PGM Registered Posts: 1,954
    jamesm96 wrote: »
    I would say (not to sound too self-contradictory here) that an inspector would probably make exactly the same argument that you have and I guess the weight of that argument would depend on whether or not the furniture and fixtures inside his office are of a similar quality; if they are then it's difficult to argue that he only bought such a high quality case to enhance his home.

    Maybe enhance is the wrong word. In a office you have functional office furniture, I don't want my home to be filled with office furniture! So what I buy for home has to fit in with home furnishings even if its purpose is 100% business.
  • Monsoon
    Monsoon FMAAT, AAT Licensed Accountant Posts: 4,071 ? ? ?
    jamesm96 wrote: »
    I think the mental image I have of a historian who generates a living for himself by re-enacting historic battles is one of a person who probably would have put that kind of a bookcase in the corner of his office. Having never met the chap, though, I could well be completely wrong.

    I would say (not to sound too self-contradictory here) that an inspector would probably make exactly the same argument that you have and I guess the weight of that argument would depend on whether or not the furniture and fixtures inside his office are of a similar quality; if they are then it's difficult to argue that he only bought such a high quality case to enhance his home.

    This.
    PGM wrote: »
    Maybe enhance is the wrong word. In a office you have functional office furniture, I don't want my home to be filled with office furniture! So what I buy for home has to fit in with home furnishings even if its purpose is 100% business.

    And this.

    He could be trying it on, and only Jodie knows, but I wouldn't dismiss this out of hand, not at all. I'm still in the "let it in" camp.
  • reader
    reader MAAT, AAT Licensed Accountant Posts: 1,037
    Really interesting thread.

    On the one hand you can argue that the expense should be disallowed because of the dual purpose indicated by the fact that the shelf is manifestly uneconomic and therefore probably wasn't just bought for business purposes (i.e. probably bought to make his home look nice).

    However on the other hand you can quietly easily argue that the expense should be allowed because it seems as if it is has been incurred wholly and exclusively for business, i.e. the tax payer needs somewhere to put his books and the expense should not be disallowed just because the same result could have been achieved with a cheaper bookcase.

    Is the correct answer to factor the bookcase into a use of home calculation (i.e. add it to additional light, heat, water, home insurance, repairs, etc) and claim a reasonable proportion of the increased total home expense?

    Hopefully an increased use of home charge wouldn't cause any P11D (assuming he's operating via a ltd company) or capital gains problems.

    I'd love to know the answer!
  • JodieR
    JodieR Registered Posts: 1,002
    whew! didn't think this would generate that much interest - thanks for all your replies!

    I'm pretty certain that the client bought the bookshelf entirly to serve the function of housing his books, and that it is located in the hallway because there's not enough space in his office (which is at home, yes). He's also not one of those clients who tries to sneak in a whole bunch of personal receipts every year. That said, I can see Dean's argument and would worry that a tax inspector would take that view too.

    I'm going to explain both sides of the argument to the client and give him 3 options:

    1. To claim the cost of the bookshelf with the understanding of the consequences if it gets dissallowed in an inspection
    2. To not claim for it
    3. For me to write to HMRC and ask for their opinion on the matter.


    Thanks again
    jodie
  • Monsoon
    Monsoon FMAAT, AAT Licensed Accountant Posts: 4,071 ? ? ?
    JodieR wrote: »

    I'm going to explain both sides of the argument to the client and give him 3 options:

    1. To claim the cost of the bookshelf with the understanding of the consequences if it gets dissallowed in an inspection
    2. To not claim for it
    3. For me to write to HMRC and ask for their opinion on the matter.


    Thanks again
    jodie

    Sounds wise to me :)

    Please let us know what the client says.
  • JodieR
    JodieR Registered Posts: 1,002
    Client has asked for it to all be claimed now (on the understanding that it may be disallowed in the future).

    I do wish that he'd said to write to HMRC so we could get a difinitive end to the argument, hopefully there'll not be an investigation but if there is i'll let you know the outcome!
  • JodieR
    JodieR Registered Posts: 1,002
    He did also confirm that they're all work-related books... 'not a Jilly Cooper or Bernard Cornwell in sight!' so that should help his case.
  • jamesm96
    jamesm96 Registered Posts: 523
    JodieR wrote: »
    Client has asked for it to all be claimed now (on the understanding that it may be disallowed in the future).

    I do wish that he'd said to write to HMRC so we could get a difinitive end to the argument, hopefully there'll not be an investigation but if there is i'll let you know the outcome!

    You can always telephone the Agent priority line, ask to speak to an inspector with a technical question and put it to him / her as a hypothetical situation. Get the inspectors name and make a note of the time and date of the call and then, if there ever is an inspection, you've got very strong grounds to argue your point.
  • JodieR
    JodieR Registered Posts: 1,002
    I didn't think they were allowed to answer hypothetical questions, or is that just the VAT people?
  • stevo5678
    stevo5678 Registered Posts: 325
    Sometimes the onus should be on the client. Ask him if it is business, private or a combination. Then apply the appropriate claim. At the end of the day we are suppossed to be helping clients but within the boundaries.
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