Inefficient Boiler Causing Large Bills ?

[kirkgas]

Ray Stafford, surely the £4k comes right off annual income as an expense before any tax is calculated? Meaning he doesn't pay anything for the boiler renewal just less tax, when I do any repairs to any of our properties I send the invoice to the accountant as an expense that's why my sons accountant told my son to buy a "large asset" rather than pay it in tax

 

[Ermintrude]

Yes but expenses are still expenses, all this means is you have a lower tax liability. If I'm wrong and hmrc pay for all your expenses,...... Ray can you please dispatch 10000 of every stock line you have and every special you know of. Please post individually as then I make you lots of money in post, and as consumables are an expense you win too!

 

[Ray Stafford]

Ray Stafford, surely the £4k comes right off annual income as an expense before any tax is calculated? Meaning he doesn't pay anything for the boiler renewal just less tax, when I do any repairs to any of our properties I send the invoice to the accountant as an expense that's why my sons accountant told my son to buy a "large asset" rather than pay it in tax

Work through an example.

Lets say that this theoretical landlord has letting income of £30,000 and other legitimate tax deductible expenses of £10,000 and that he pays tax at 25%, and that the boiler swap and associated work would cost £4,000. It doesn't really matter whether these figures are perfect - this is just an example.

Scenario 1: If he doesn't change the boiler, his annual accounts show taxable profits of £30,000 minus £10,000 = £20,000 profit - so he sends a £5,000 cheque to the tax man, and pockets £15,000 for himself.


Scenario 2: If he does change the boiler at a cost of £4,000, his tax deductible expenses are now £14,000. His accounts show a profit of £30,000 minus £14,000 = £16,000 profit. 25% of £16,000 is £4000, so thats the cheque he sends to HMRC and he takes home £12,000.

The difference between the two scenarios is that he has £3,000 less in his pocket and the taxman has £1,000 less to pay for public services. However, the taxman will probably get his £1,000 back and more, because of the additional taxes that the boiler manufacturer, merchant and installer will pay as a consequence of this extra installation.

The other main beneficiary is the tenant, who enjoys lower fuel bills. The landlord MIGHT gain through lower system maintenance bills, but thats far from certain - 552s are pretty robust.

Acquiring an asset is a slightly different kettle of fish, and the tax treatment is more complex, depending on what the asset is. But replacing an existing boiler in a let property is normally an expense, not the acquisition of an asset.

 

[chris watkins]

Acquiring an asset is a slightly different kettle of fish, and the tax treatment is more complex, depending on what the asset is. But replacing an existing boiler in a let property is normally an expense, not the acquisition of an asset.

Nice one Ray, well explained.
Just one quick question if I may, so how many fish & kettle should I buy to be able to claim them as an asset ? :Angel_anim:

An asset would be buying something for the business like a jetting machine / other plant items or an office, yard or lock-up etc.

 

[Ray Stafford]

An asset would be buying something for the business like a jetting machine / other plant items or an office, yard or lock-up etc.

Assets come in two main flavours. Current assets include cash, stock for re-sale, consumables and the debts that your customers owe you. One expects the current asset position to vary rapidly during the course of trading.

Fixed assets are, as they sound, more long-lived. They aren't necessarily fixed in the sense of "screwed down" - but they don't normally change on a day to day basis.

Depending on the type of business, a specific item may fall into a different asset category. For example, for most of us, a van is a fixed asset. But for a second hand commercial vehicle dealer, the vans on his forecourt are current assets.

Merely acquiring and disposing of assets does not lead to a tax liability or reduction on its own.

For example, if I spend £100 on copper tube, I have converted one sort of current asset ( £100 cash) to another sort (£100 stock). If I were to sell it to you on account for the same price that I paid for it, I would have reduced my stock, but increased my debtors by £100 (another class of current asset). Finally, if you paid your bill, the debt would be converted back to £100 cash and I would be back where I started. (and in sore need of a business studies course).

However, if I charge you £120, then at the end of the cycle I have an additional £20 on my balance sheet. (The gross profit) It is this which will form the basis of any tax charge, once the expenses of selling it are accounted for.

The taxman has a variety of ways of encouraging and discouraging the acquisition of differing types of fixed assets. For example, the acquistion of high end residential property by companies attracts a punitive tax - to prevent business men from buying posh houses through their businesses, and thus potentially dodging income tax. On the other hand, if you acquire manufacturing machinery, there is a fair chance that your accountant can get some attractive tax allowance under one of the schemes, because the government want to encourage manufacturing.

However, I know of no circumstances when the tax man pays for 100% of any business cost. Usually the maximum benefit is at most equivalent to the cost of the expense x the marginal rate of tax.

 

[jtsplumbing]

But replacing the boiler wont be an asset ! it would be a expense for repairs to his property, so would be fully deductible, same as spending out for repairs to your van, replace tyres = expense, not an asset

 

[Ray Stafford]

But replacing the boiler wont be an asset ! it would be a expense for repairs to his property, so would be fully deductible, same as spending out for repairs to your van, replace tyres = expense, not an asset

I think you may have missed my post #18

 

[Chalked]

The install would have the effect of making the house worth a little more and easier to sell.

 

[AWheating]

back boilers are more efficient then a modern combi, it will still be working in 5 years

 

[Ermintrude]

back boilers are more efficient then a modern combi, it will still be working in 5 years

Your calculations are way off.
Simi , ravencheap or isar. Very efficient on gas. After first year it's guaranteed that they will save you. 99% on gas consumption ( no gas used when broken)
But the 125 call outs and 125 cheques receipts and ID notices will soon reduice any savings on gas as you say