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Sam
Sam, Accountant
Category: Tax
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Experience:  26 HMRC expertise, PAYE, Self Assessment ,Residency, Rental Income, Capital Gains, CIS ask for Sam Tax
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Hello. I have 3 properties which I rent out. I have recently

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Hello. I have 3 properties which I rent out. I have recently had a loft conversion done on one, and am about to do the same with a second property. The builder I have and am employing again is very good, but asks me to pay the builders he uses directly, so I have all payments made through my account, which can be seen. However, I have not been able to get him to get his builders to give me invoices for labour ( I have some for materials) . When it comes to filling in my tax return, I have a few questions, 1. Do I put down the costs incurred as a result of the loft extension to offset the profit made from rent, and if I make a say a 20000 loss as a result, would this loss be carried over to next year? In addition, without the invoices am I able to put these figures down as costs, if I have bank statements to show the money going through?. 2. If I want in the future to sell the property and I want to offset my capital gains by the amount of money I have spend doing up the property, then a) am I allowed to put in the figures for the loft (with only bank statements to show) and b) if I have used these figures to offset my profit for the current tax year, am I allowed again to use them when I come to calculate figures for reducing my capital gain when I come to sell the property. I am guessing the answers to these questions may answer my final one which is how hard do I need to push for the builders to provide me with invoices for the work they are about to start doing on the next loft conversion, or are bank statements enough in practice.
Submitted: 2 years ago.
Category: Tax
Expert:  Sam replied 2 years ago.
Hi
Thanks for your questions I am Sam and I am one of the UK tax experts here on Just Answer.
Firstly - as this seems to be an ongoing venture of adding loft conversions, you should either be
1) Operating CIS (making tax deductions from payments from the gross amounts you pay the subcontractors) so registering as a contractor with HMRC so you can operate the Construction Industry scheme and getting each subcontractors registered Unique taxpayer reference number
2) Paying the main contractor gross and him operating the CIS scheme
But you should not be paying them gross.
And I would suggest you insist on invoices so you can claim for the labour to date, and advise failure to do so, will see you approaching HMRC - and I would also urge you to find another builder who will make sure the tax position is addressed correctly.
Failure to get invoices leaves you in a difficult position, as whilst this does stop you from claiming the costs, if HMRC look into your tax return for that year - they may well disallow the costs as you do not have sufficient paperwork and you failed to operate CIS in the absence of the main contractor.
For the next job if you are unable to get the Unique taxpayer references then pay the contractor gross - which may be the way forward is this is the final loft conversion you plan to do.
The costs for the loft conversions cannot be claimed against the rental income, This is a capital cost, so you will claim this against the capital gains, as and when the property )properties) are sold.
So to answer your questions fully
1. Do I put down the costs incurred as a result of the loft extension to offset the profit made from rent, and if I make a say a 20000 loss as a result, would this loss be carried over to next year? In addition, without the invoices am I able to put these figures down as costs, if I have bank statements to show the money going through?.
No - these are capital expenses and only allowable to claim against the capital gain.
You MUST get invoices and if the main builder will not assist you with this then you must report this to HMRC, and maybe advise you will engage another builder
2. If I want in the future to sell the property and I want to offset my capital gains by the amount of money I have spend doing up the property, then
You HAVE to use these costs against the capital gain, there is no choice on this.
a) am I allowed to put in the figures for the loft (with only bank statements to show) Yes you can, but HMRc will disallow the costs without the invoices to back up the payments being made
and
b) if I have used these figures to offset my profit for the current tax year, am I allowed again to use them when I come to calculate figures for reducing my capital gain when I come to sell the property
NO its either/or and in this instance you can only use these costs to reduce the capital gain ands you should push hard for invoices (as it would appear they are not declaring the income through their self assessment tax - which is tax fraud) and they are jeopardising your ability to claim these costs when you come to sell the properties.
Do ask any follow up questions you might have
Thanks
Sam
Expert:  Sam replied 2 years ago.
Hi
It would be appreciated if you could rate the level of service I have provided as this ensures I am credited for my time
Thanks
Sam
Expert:  Sam replied 2 years ago.
Hi
Please let me know if there is anything else you require assistance on
Thanks
Sam,

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