Tax return - expenses which are assets

[musicposy]

Hi there, I have an accountant but I can't get an answer in a form I can understand and I argue with him year after year so I wonder if I can get any advice on here.

I work as a piano and electronic keyboard teacher. I am constantly buying and replacing instruments - to the rate of one every year or so.

I have a digital piano (£2000), a stage piano which I use as keyboard for my intermediates and as a piano for 4 hand duets, a really top range keyboard for my high grades and diplomas(£1500), a beginner keyboard because I don't want my 6 year olds ruining my expensive keyboard (£300), and a small synthesiser.

These get very heavy use and I normally have to replace after 5-8 years. The minute I pay one off, something else goes wrong. As technology moves so fast repairs don't make sense.

The accountant will only take a tiny percentage of the cost against my tax as he says they are assets. I say they devalue so fast, get out of date so fast, and wear out so quickly they are not assets in the traditional sense but he won't have it. So I am stuck in the situation where I am paying out anything up to £1000 a year for new instruments, every year, and yet only claiming around £150 against tax. I had to scrap my beginner keyboard earlier in the year and am off out today to look for a new one - with a heavy heart as this will be a £300+ expense that I will be allowed to claim maybe £50 of as it will be an asset.

If I did not have the business I would not have these expenses. They are not for personal use - except in the sense that I have to practice stuff for my teaching on them.

Can anyone explain why the accountant is right?

Your accountant is wrong (IMO). The assets should be depreciated (probably on a straight-line basis) over their expected useful life. Does the equipment have any residual value, or are you literally scrapping them (i.e. not selling them on ebay, or to students)

I usually scrap them (this last one just went wrong - one speaker stopped working and was making a hideous noise - DH fiddled with it and couldn't sort it so I took it to the tip). Sometimes I've donated them to poorer students who are trying to practice on school instruments or, in one case, to a youth community centre one of the parents worked at. I'd much rather do that than have the faff of trying to sell them for under £40 on eBay and then having comeback when they go wrong straightaway.

The accountant did once say something about claiming a bit each year but he never does once the first year is over and I don't know how much to put down. I did point out that I was buying stuff year after year but he didn't suggest adding anything from the previous years.

I once lost a whole load of books because they disappeared from a cupboard at a school I worked at, never to be seen again, and the accountant did put that down as destruction of assets. Should I be doing that with the keyboards I scrap?

Not quite sure what I'm paying my accountant for at times!

Would never bother depreciating something that cost £300. I'd allow it as a business expense.

HMRC rules don't allow any choice - there is a set 18% writing down allowance on equipment. That's the law.

However, in the year of purchase, you should be able to claim 100% against your profits by claiming the annual investment allowance instead of writing down allowance.

But sometimes, it's not worth claiming it if your profits are already low enough not to pay tax and/or NIC as it's just then wasted. So then, the ONLY other alternative is to claim 18% p.a. in later years. There's NO other option. It's up to 100% claim under AIA in year of purchase OR 18% WDA in subsequent years.

Tax law simply does not allow you to write off an asset in any other way, such as in 3 equal instalments over 3 years, however much more sensible you feel that may be.

You are supposed to apply the writing down allowance each year you own the item, so the £1000 you spend in year 1 would be an allowance of say, 18% so you claim £180.

You then carry the balance forward to the next year so you start year 2 with assets worth £1000 - £180 = £820.

Then in year 2 you spend another £1000 which you add to the balance you already have £1000 + £820 = £1820. At the end of year 2 you claim 18% of the total of £1820 which in this example would be £327.60

The figure to carry forward to year 3 would be £1820 - £327.60 = £1492.40, to which you add the year 3 asset purchases and claim 18% of that.

And so on, year after year. Perhaps this is what your accountant is doing, but they haven't explained it very well. If they aren't doing your WDA properly, or using your AIA allowance either, then maybe it is time to find another accountant?

He's definitely not done this - a bit seems to get claimed in the first year (which I'm sure is not as specific as 18%) then it just gets forgotten in subsequent years.

I've not been too happy for a while - there's been loads of stuff my sister has picked up on which I've had to take up with him (she's a management accountant for a large organisation - she moves budgets around a lot, I think, but it's a bit different to my small private accounts). I think I might look around elsewhere.

I basically do most of the books myself, give it all to him on a spreadsheet, he disallows half the stuff and moves a few things into different headings, I argue a bit, he tells me I can't claim x, y and z, I give in and sign the forms. I never get any actual advice.

This has been brilliant, by the way, so thank you! I've had more understanding on here than in years worth of wrangling.

As there are tax knowledgeable people on here, here's something else I fell annoyed over, but I'm willing to be told I'm wrong! I have occasional lessons with a musician I know who is a top keyboard player, jazz composer and examiner. This keeps me up to date with current exam thinking and keeps my skills as a teacher up, or develops them. I'd also really like to go to teachers conferences which the exam board run - but they are not cheap and the accountant says I cannot claim any of this as I cannot claim for personal development. However, these are lessons and conferences I would not be taking if I was not working as a teacher. (Nobody, but nobody, goes to an exam board teacher conference for fun )

Yes you can claim it - your acountant is wrong. Google the musicians union advice on what you can claim as a self-employed musician - it is really helpful.

Does your accountant allow you to claim for things like CD's that you use for researching pieces of music, or concert tickets?

Also, google 'A performers guide to business expenses and self assessment in the UK' which is a pdf file from an accountancy practice specialising in the performing arts.

Sorry, I would post a link but I am rubbish at that sort of thing!

Your accountant is shocking.

I'm actually shocked he's not either claiming AIA or as a renewal of equipment- both justifiable and would achieve the same result.
The only thing I can think of is that he is claiming it, but restricting it for private use - but he should have agreed that with you.

Yes, you can claim for professional development - it is an extension of your existing skills and an important part of keeping up to date. You couldn't claim for 'new' skills, for example, like your initial training but updating and developing existing ones are fine.

Would it be better to rent them? That way you can claim the full amount back for your monthly rent on them?

The OP is entitled to recover the cost of the instruments anyway, no need to rent. This accountant appears to have no experience in the professional musician/music teacher/performing arts field at all.

Will PM you the details of my entertainment/performing arts industry accountant. Sack yours forthwith!

From your description, any capable accountant should be able to handle your tax affairs, your accountant sounds useless.

Is your current accountant qualified? If he is, complain to him, (thus may be easier once you have appointed a replacement who can tell you what has been done wrong) and if you do not receive a satisfactory outcome, complain to his professional body.

Is anyone else wondering just how much this accountant is charging?!

it seems to me that they are going through the expenses and carefully looking for all the things that can't be claimed, instead of trying to find as many things as possible which can.

Accountants are supposed to work for you, not the tax man!

If that is what he is doing then it is incorrect

Are you sure you are not confusing depreciation (which would show in your accounts) and capital allowances (which are different and show on the tax return)?

It sounds like it's time to change to someone who you are happy with

I'm an accountant, PM me if I can help x

Definitely change accountant. Try to get a recommendation from someone similar to you - recommendations are best. If not, then check they're properly qualified. Shockingly, anyone can call themselves an accountant and set up an accountancy practice, regardless of whether they have any qualifications and/or experience. This is basic bread & butter stuff for any accountant - it's not specialist. He sounds like an incompetent guy who's not qualified or an old qualified guy who's out of touch - either way get rid.