Self Assessment - Unsure how to handle partial refund of large expense

scottishblondie

On my 2017-18 tax return I had a large expense to put against my BTL property as there was a major works bill for the building of ~£11k I had to pay up front. Once the works were completed and all the accounts reconciled I received a refund of ~£3k (unused contingency funds + another owner finally paid their share which the other owners had covered initially) in the 2018-19 tax year.

Now that I'm filling out my self assessment for 2018-19 I'm not sure how to handle this refund. I'm not finding any information on the HMRC website, perhaps because I'm unsure of the correct terms to use when searching. Can anyone advise?

Retired_Mortgage_Adviser

I've had refunds of less than £300 in the past. I just reduce them from the expenses in the tax-year that I received the refund. I do this for simplicity considering the amounts involved, if it were larger I would do as described below.

You can also make a change to your tax return after you’ve filed it. If you want to do it online, changes will need to made by 31/01/2020 for the 2017-18 tax year. If you miss that date, you can also write to HMRC.

https://www.gov.uk/self-assessment-tax-returns/corrections

scottishblondie

Retired_Mortgage_Adviser wrote: »

I've had refunds of less than £300 in the past. I just reduce them from the expenses in the tax-year that I received the refund. I do this for simplicity considering the amounts involved, if it were larger I would do as described below.

You can also make a change to your tax return after you’ve filed it. If you want to do it online, changes will need to made by 31/01/2020 for the 2017-18 tax year. If you miss that date, you can also write to HMRC.

https://www.gov.uk/self-assessment-tax-returns/corrections

Thank you, I hadn't realised I could amend the 2017-18 return at this point. That sounds like it may be the best option. I don't think my expenses for 2018-19 would reach the amount of the refund in the first place.

00ec25

technically I assume you have prepared your rental income accounts on the cash basis (gross <£150,000 per year)


therefore amending your tax return for a post tax year cash refund would be technically incorrect as the refund should be declared as a negative expense in the year in which it was received. That may, or may not, result in a trading loss for that tax year - how you deal with such loss is a different issue

Cook_County

Foolish question perhaps, but how does one know this kind of cost is a revenue expense?

scottishblondie

00ec25 wrote: »

technically I assume you have prepared your rental income accounts on the cash basis (gross <£150,000 per year)

therefore amending your tax return for a post tax year cash refund would be technically incorrect as the refund should be declared as a negative expense in the year in which it was received. That may, or may not, result in a trading loss for that tax year - how you deal with such loss is a different issue

Yes I am using the cash basis (having read up an now understanding it, hopefully!!). Gross rental income was £8825, so well within the £150k limit :rotfl:

Allowable expenses totalled £2172.68, total mortgage interest was £999.75 (of which I believe I can now claim 50% of as an expense?) so total expenses are £2672.55.

The refund was £2217.68, so that still leaves me with £454.87 of expenses if I treat the refund as a "negative expense".