Are raffle tickets an allowable expense?

[Deleted User]

se2020 said:

The tools will only be used for work.

If I had not won these then I would have bought ones the same for work use at some stage anyway.

I appreciate that me & my business are both one and rhe same thing.
But, if the tickets are not a valid business expense then I must have paid for them out of my own personal income?
If that is the case, I presume I could sell these tools for say £1250 and that £1250 would not need to be declared as income?

Then I could just buy the same tools as I was going to eventually anyway and use the receipts as a valid expense?

I have already explained this. You claim on the value of the tools at £1750. It would be wise to back up this valuation with some evidence.

If a friend were to buy some tools for you as a gift the treatment would be exactly the same.

It doesn’t matter how you paid for them, whether you paid for them or, like you, won them in a raffle. The raffle cost itself is not an allowable expense. 

[Deleted User]

DullGreyGuy said:

As a sole trader there is only you, there isnt a you and your business hence you correctly identify you cannot sell them to yourselves.

I believes others are correct and gambling cannot be a legitimate business expense and so you've nothing to deduct off your profits. You certainly cannot claim the full price as an expense that you havent paid!

Are these tools going to be used for your business or yourself or a mixture?

In theory if you were to sell them as used tools in the future and had been using them 50/50 for work and personal then arguably 50% of the sale price should be marked as revenue for your business. 

I don’t agree that you cannot claim the full value of the tools. As I have said, if £1750 of tools had been bought as a gift, they would be introduced at that value even though the op paid zero.

Jeremy535897

Where tax law does not provide otherwise, the tax treatment of a transaction follows the generally accepted accounting practice, and in this case, FRS 105 (micro-entities) is likely to be relevant. This states, at 12.13:

"12.13 An item of property, plant or equipment or investment property may be acquired in exchange for a non-monetary asset or assets, or a combination of monetary and nonmonetary assets. A micro-entity shall measure the cost of the acquired asset at fair value unless: (a) the exchange transaction lacks commercial substance; or (b) the fair value of neither the asset received nor the asset given up is reliably measurable. In that case, the asset’s cost is measured at the carrying amount of the asset given up."

Whilst not entirely analogous to the situation here, I think the principle would still be to recognise the acquisition of the tools at "fair value". In circumstances where the items concerned are second hand but unused, that is the basis on which to assess the fair value, so at a discount from what would be paid to a retailer. If OP uses the cash basis, the problem of course is that at most £10 is incurred.

There are, however, special rules for capital allowances. HMRC's toolkit on capital allowances states:

"In most cases, the amount of the expenditure is usually the purchase price of the asset. However, if the asset was initially acquired for other purposes, or if it was received as a gift, then the market value of the asset will be the qualifying expenditure."

This is an abbreviated version of sections 13 and 14 CAA 2001. Basically, you only claim capital allowances if you incur expenditure. The legislation then deems market value to be incurred where you first use an asset for non-business purposes (section 13), or you acquire it as a gift (section 14). Neither of these circumstances appears to apply here, so there appears to be no allowance, although there might be an argument to claim the £10, except that the expenditure is incurred in the hope of acquiring the asset, rather than on actually acquiring it.

Perhaps you could argue that the raffle operator is making a gift to the winner, but the meaning of gift is the handing over of something willingly without expectation of payment. That is not what happens. The raffle operator may even make a profit, when all the payments are added together. The other ticket buyers are not making gifts either.

So my conclusion is that if OP uses the cash basis, probably the £10 can simply be claimed as a business expense, win or lose. If he does not, I fear that no relief is available unless the tools are actually won, as the £10 spent is probably "abortive acquisition expenditure". That means it is capital in nature, but no asset is acquired, so no capital allowances are available. If the tools are won, the capital allowances due are £10.

Jeremy535897

If say OP's spouse bought the ticket and won the prize, and then gave the tools to OP, then OP would be able to claim capital allowances equal to their second hand but unused value, so long as he did not use the cash basis. But the cost of the ticket could not be claimed whichever basis is used.