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I'm about to re-furnish one of my flats and I wonder how I should account for the new as well a replacement furniture.
1. When I get rid of furniture do I need to balance my furniture and fixings account in any way?
2. I've understood that I can only reclaim the same amount as the original value of the furniture I replace against my rental income. The amount that is an improvement is a capital tax. However, should I use the original value or the depreciated value?
3. Can I claim the new (not replacement) furniture against my rent or is it also a capital expense?
4. Does the depreciation of my new furniture affect my P&L as the years go by or will the furniture asset account simply depreciate and be balanced with an accumulated furniture depreciation account?
Any help would be great to get as I'm putting together a business plan and need to get the basics right - also good to check if my accountant knows what they are doing...
To answer your questions:
1. Technically you should write off the remaining balance on the furniture thrown away however generally most people do not bother as it is too much trouble and doesn't affect the figures by that much.
2. No the reclaim is on a like for like basis ignoring cost. The example HMRC used in their Consultation Document was that of a washing machine being replaced by a washer drier. If the cost of the washer drier is £420 but a straight washing machine would be £360 then you can claim for the £360 as a deduction and the balance is as you say capital. the amount you claim is the current cost of a replacement machine and has nothing to do with the historical cost or depreciated value of the machine being replaced.
3. You cannot claim for the cost of new furniture that is purely capital expenditure.
4. The depreciation of the furniture does hit the P&L as the years pass and will impact on the dividends you can take.
Thank you for your swift an detailed reply Nigel!
Could you please develop point 4 a bit more:
- Can I count the annual depreciation of the furniture as an expense (ie revenue cost)?
- How does it effect the dividends I can take?
No you cannot claim the depreciation as an expense it is not an allowable deduction for tax purposes. As for the dividends it reduces the profits and hence the amount available for distribution as a dividend.
Thanks but if the depreciation does not affect P&L as an expense how does it affect it?
The cost would only affect my profits and dividends the year I buy the furniture - or am I missing something?
The furniture depreciation appears to be a bit unnecessary, because I should still be able the original cost and not the "real" depreciated value as a capital expense when selling the property?
The depreciation is an expense in the P&L but it is not an allowable deduction for tax purposes.
If my profits are reduced I will pay less corporation tax/income tax - or is the expense after tax?
You have either not read or not understood my previous reply to your question. I post on this forum to answer questions on accounts and tax I do not do it to train people in accountancy and tax. I would recommend you contact an Accountant who understands property accounts and property tax and pay them to do your accounts and tax. Based upon your questions if you are trying to do it yourself you will be getting yourself into a lot of trouble.
Sorry Nigel, thank you for all your replies - truly appreciate it. A bit slow in the morning, I'm guessing it's a capital expense so it would not affect the tax - as per your answers above.