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January Questions and Answers

Q1. I am in the process of buying a property that has been empty for a number of years. Extensive renovation is needed, and I have been speaking to a contractor who says that he will be able to charge just 5% VAT for the work. I don’t want to fall foul of HMRC, so is this correct?

A: The answer is “possibly”. Building work, and the underlying materials, can be subject to VAT at 5% if the building is a dwelling that has been empty for at least two years. However, any professional fees – such as designers or architects – will be subject to VAT at the standard rate. In order to qualify for the 5% rate, you will need to give the contractor third-party evidence to confirm the empty period. This must be from a source HMRC considers to be “reliable”, so a signed statement from the man across the road won’t do. Instead, you should look to things like council tax information, electoral register entries, etc. You may also be able to acquire a letter from an empty property officer – in which case you will have an acceptable form of evidence without needing to secure any other paperwork.

Q2. My fellow partners and I are looking to undertake some capital investment in order to expand our business activities. However, as we have left this until after the 31 December 2021 cut-off for the increased annual investment allowance, we are considering making a claim using the super-deduction instead. However, we are unsure whether this is the best option as we have heard that there can be issues the assets sold later on. Is that correct?

A: The super-deduction is actually a red herring as it is only available to companies. As a partnership, you wouldn’t be able to claim it unless you incorporated prior to incurring the expenditure. Whilst this may make commercial sense, there is some good news that means you don’t have to do this. The increased annual investment allowance of £1 million has been extended to 31 March 2023, so you haven’t missed the cut-off. Of course, you may wish to go down the incorporation route to secure relief at 130%, so it is worth doing some sums before making any decisions.

Q3. Subject to any travel restrictions, I will be taking a holiday with my family in February. As I have a number of consultancy clients relatively near to where we are staying, I’ve decided to extend the trip by three days so I can go and meet them to discuss some business-related matters. Can I deduct a proportion of the costs of the holiday from my business profits?

A: In practice the main purpose of your trip is for private rather than business reasons, so there will be no relief available for the cost of the holiday. However, any additional costs that can be easily identified and separated, e.g. travel costs from your location to visit your clients, can be deducted. Just ensure you segregate these out carefully in case you’re asked to produce evidence later on.

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