Bed & Breakfast

System
System Posts: 100,534 🤖 Admin 🤖
edited June 18 in AAT member discussion
My client is a B&B who has mortgaged their property in order to start up their business. The mortgage is defined as a loan account in the accounts and all loan repayments have come out of the business account.

The question I have is, how do I deal with this in the accounts?

Do I class the loan as capital bearing in mind that the premises is their home and approx a third is for business use but 100% of the loan repayment comes out of the business account?

Or do I leave out the loan altogether and keep that completely separate from the business? (Which was my initial thought)?

Sorry if I’m being a bit thick but am a stuck as to what is the best course of action?

If anyone has any experience of B&B accounts it would be much appreciated :)

Many thanks
Sharon
Ps. When I search on IR website for B&B, I just get loads of stuff on the term 'Bed & Breakfasting' which is very annoying!! :evil:





Comments

  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Bed & Breakfast

    Hi Sharon has your client mortgaged their property and then bought another and started trading as a B & B or have they just the property that is trading as a B& B if they only have the B&B then the interest on the loan will be entered on the Income Statement however should they actually reside at the premises the revenue will only allow a percentage of the interest they normally i believe work out the ratio on a square footage basis the capital part of the repayment will come from the profit of the business hope that this is of some help
    Terry
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Bed & Breakfast

    I would have thought the best way would be to determine how much of the property is used for 'business use' and use that proportion of the interest expense in the accounts. However, to be in the safe side, it may be helpful to get approval from HMRC first.
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Bed & Breakfast

    Thanks Terry & TC.
    The property is also their residence so it would have to be a proportion of the interest expense.
    But as the loan repayments are paid out of the business account, would I class this as drawings?
    Or, should I treat a proportion of the loan as capital with the repayments reducing the long term liability?
    The loan is primarly a mortgage but fixtures & fittings have been purchased out of this in order to get the business up and running. I'm not sure whether this would have a bearing on how I treat this in the accounts?

    Thanks
    Sharon
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Bed & Breakfast

    Hi Sharon
    I have had dealings with the Revenue and Customs recently and both have used the proportion of private accommodation to business use on a square footage basis to determine the interest attributable to the B & B with regard to the loan, I would have thought that it would be better to treat this as a loan account with the payments per year reducing the liability, the amount of the capital repayments in the past these have been allocated to personal drawings and Income tax paid on the capital payment another point to consider is that as this is their principle place of residence when they come to sell the B & B the ratio that has been used will also be used to determine the exempt amount for capital gains hope this is of some help
    Terry
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Bed & Breakfast

    Hi Terry
    Many thanks for your help and clarification

    Regards
    Sharon

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