Submitted higher taxable profit than neccessary?

bigbananas

Hi,

In order to get as good a mortgage as possible I submitted 44K as my income on my SA tax return. I decided to leave off a bill for a 4K shed that I purchased to use as my work office.

As I've now got my SA302 form to prove my income as 44K to mortgage companies, would any of you advise me to submit an alteration to my tax return taking the 4K shed off my profit so I don't end up paying as much tax?

ceeforcat

No, for two reasons -

1)it would suggest that your mortgage application was based on an estimate with all the repercussions that may ensue.

2) The shed cost would NOT reduce your profits by £4000. Indeed, as it could be classed as a building, it would not reduce your profits at all!

bigbananas

Thanks for the reply.

Repercussions such as the mortgage company may discover the altered tax figure and decline my application?

I thought I would be able to put the shed down as a business cost because I use it soley as a workplace and it cost me to covert into an office (double glazed, insulated, network connection etc)? If not then would it be classed as just another room on my house?

dan.date66

with ceeforcat. The cost of the shed was capital and therefore not allowable as a revenue expense (unless you took out a loan for the 4k and you could claim the interest)

If the above were a legitimate expense, you would still be commiting mortgage fraud by doing what your suggesting. Luckily for you you can't, so you're not!

bigbananas

How is my shed different from buying, say, a computer which I need for work? If it's because it would be classed as a building and therefore, for some reason, not a taxable expense, then I understand (I don't like it though!) . How about the cost of having to pay for an electrician to install the leccy to it? What about the cost of making it "liveable"?

ceeforcat

I am slightly worried by your answer. The computer that you have mentioned has no effect on your net profit. It does affect your taxable profit because it is claimed by way of Capital Allowances - this may seem pedantic but a mortgage company is interested in your net profit, not taxable profit and there is also the issue of the correct completion of your Self Assessment tax return. How would you treat a car purchase?

Even if you could claim Capital Allowances on your shed, it is completely wrong to reduce your profit by the £4000 cost. Have a read of this - fourth paragraph in particular!

http://www.hmrc.gov.uk/capital-allowances/buildings.htm

le_loup

dan.date66 wrote: »

If the above were a legitimate expense, you would still be committing mortgage fraud by doing what your suggesting. Luckily for you you can't, so you're not!

Intent to defraud may well come to light. Mortgage issuers having been bitten by "self certification" probably investigate more than they once did.

richbeth

bigbananas wrote: »

How is my shed different from buying, say, a computer which I need for work? If it's because it would be classed as a building and therefore, for some reason, not a taxable expense, then I understand (I don't like it though!) . How about the cost of having to pay for an electrician to install the leccy to it? What about the cost of making it "liveable"?

Hi,
you may need to get professional advice, do you have an accountant ? but simply put you spend money in two ways
1) expenses - this money is gone in the year when you spend it or is of a low amount, power bills, stationery, other consumables, maintenance and repair etc and is therefore tax deductible in the year you spend it
2) assets - e.g. computer and (maybe) shed, this doesn't disappear being used over several years so it is not an expense. It will appear on your balance sheet as an asset (if you do all the accounts yourself you may not have a balance sheet).

But you say I need to replace my computer every few years ! ah, yes of course you do ! so a year after you bought it the computer is worth something but less than you paid for it. This is depreciation and you usually depreciate the value of an asset over an agreed number of years, for a PC this is most likely 3-5 years. So if you pay £900 for a computer and depreciate it over 3 years it's £300 per year. So the value of the computer on the balance sheet reduces by £300 per year. The good news is that this £300 IS tax deductible so you can claim this each year for the agreed lifetime and can probably write the rest off if you replace it earlier.

So if you buy a computer and claim it all against tax in the year you buy it you could be in trouble with the tax man...

So re the shed, the question is does it depreciate ? will it be worth less in 5 years than now ? if it's maintained properly then probably not by much (remember maintenace is tax deductible) but you may be able to argue that it should be depreciated over say 10 years.

re the shed installation, I THINK that all the set-up costs will be classed as building the asset so the toal cost will go on the balance sheet but a professional will be able to advise you.

Hope that explains things,
RB

ceeforcat

Great post richbeth - however, I am sure that you will accept that, no matter how long one determines the 'life' of the shed, none of the depreciation will be tax deductible in whatever form.

Pennywise

A computer qualifies for capital allowances because it's used IN your trade, i.e. a tool of your trade.

By contrast, a building provides the environment in which your trade operates, i.e. a roof over your head. The building isn't used in your trade.

That's the difference.