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Are building repair works carried out at the same time as alterations

Resolved Question:

Are building repair works carried out at the same time as alterations allowable against profits?
Submitted: 1 year ago.
Category: Tax
Expert:  TonyTax replied 1 year ago.
.

Can you give me some more detail please. Are you the owner or tenant of the building? Is it used business? What is the nature of your business? What alteration works are being carried out at this time? What repair works are being done?
Customer: replied 1 year ago.

I am the owner of the building. It is a ground floor shop with a two storey flat above. I let both the shop and flat.

The alterations consist of an alteration to the shop access at the front and a rear extension to the shop.

The repairs consist of removing fallen brick walls from the garden area and replacing with close boarded fence, tidying the garden and weed proofing with terram and pea shingle. Also repairs to soil water drain now exposed when work started and repairs to flat roof over shop entrance that started to leak in the storms the day before work started. The roof has so far been patched but needs replacing.

Expert:  TonyTax replied 1 year ago.
Thanks.

Whilst you have replaced the fallen brick walls with a fence, I wouldn't class that as an improvement which would be a capital expense so I'd claim the cost of the fence as a repair. The costs of tidying the garden, weed proofing and flat roof repairs would also be classed as repairs and maintenance. Given that a roof is really part of the structure of the building, HMRC would almost certainly claim that the cost of a new one was a capital expense. Replacing a few tiles can be claimed as a repair. I'd also claim the cost of the repairs to the soil drain.

The article here may be of interest.

I hope this helps but let me know if you have any further questions.
Customer: replied 1 year ago.

Thank you. It is several years ago that I studied this and at that time, you could argue your case with the tax inspector until you had agreed a position with him. I understand that the situation now is that if you have filed your return and made a claim that is not correct, a penalty is payable based on the extra tax that is ultimately payable after the investigation has concluded. At the time that I studied this, no allowance could be claimed single glazed windows with double glazed. The notes that you directed me to indicate that that has changed. The notes refer to residential letting whereas the part that is being repaired and altered is a shop.

The repairs at the back of the property have been needed time and I put them off because access was extremely difficult whilst the shop was occupied and I was planning to do the shop alterations but it has taken a couple of years to get planning consent. To gain access to the garden, the builders have knocked a hole in both front and back of the shop.

I should have said that the electrics which were about 80 years old were condemned and I had to have the flat rewired to carry on letting it. The shop should have been done at the same time but I managed to put it off as there was only low usage and again, I had planned to have the shop altered. That is now being done at the same time as wiring the extension.

The flat roof over the shop front although needing repair is over the alterations to the entrance and the notes that you directed me to indicate that this would not be a repair as it is part of the structure but the roof will be the same roof doing the same job and is in need of replacement to stop the leaks.

As the total of all of the repair element is likely to cost in excess of £10,000 plus VAT out of a total price of about £85,000 including VAT I would like to be able to claim as much as possible of this against profit but I do not want to be in a position of risking an enquiry that can find an error and thus potentially incur a penalty. It is bad enough paying the tax due let alone an unnecessary penalty.

Expert:  TonyTax replied 1 year ago.
Nothing you have said in your last post has changed my view as to what I would claim as repairs. I wouldn't be conservative with my claim because of what might happen in the future as I might be shortchanging myself.

HMRC have a year from when a tax return is submitted to look into it unless they look into a later year and extrapolate their findings to an earlier year. Unless you have been deliberately negligent by claiming costs that you knew or thought could be seen as improvements, any additional tax liability arising from a disallowance would probably only be subject to interest at 3% per annum. The tax surcharges are more onerous, however. Penalties can be appealed against.

If I worried that every repair claim I made on behalf of clients would be challenged I wouldn't make claims that were completely justified. You just have to take a view on an expense item and go with what you think is right and be prepared to argue your case. As you have a mixture of repair and improvement expenditure, you need to be a little more careful as to how you divide the costs.
Customer: replied 1 year ago.

Thank you. Does the repair work have to be billed as we go along to justify this or can I apportion the contract based on the builder's costing of the various repair elements that have been involved in the project?

Expert:  TonyTax replied 1 year ago.
The more specific the builder's invoices can be, the better. The work doesn't have to be billed as you go along though that may be preferable if the work staddles two tax years.
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