How on earth do I tag the costs of property developing?

I’ve set up a small business property developing… and no idea how to split and tag the final payment to my conveyancing solicitor, which included -

Water and Drainage Search (inc. VAT)

Local Search (inc. VAT)

Environmental Search (inc. VAT)

Chancel Search

Road & Air Highways Search

Common Land Search

Highways – London Borough Council

Solicitors Bank Transfer fee (inc. VAT)

HM Revenue and Customs Stamp Duty Land Tax

Solicitors Stamp Duty Land Tax submission fee (inc. VAT)

Land Registry Office Copies

GCS Indemnity Insurance – Building Regs

GCS Indemnity Insurance – Easement

Ouch. All suggestions welcome.

PS: First day on Quickfile and I’m telling myself the headaches will be worth it when I get fast at this!

Generally, Purchase price of a a fixed asset and any costs incurred to bring the asset to the location and condition needed for it to operate in the manner intended are capitalised

Thanks very much for the fast reply. I’m a total newbie - what does capitalised mean?

You can create a new nominal code e.g “25 Pinner Road” in balance sheet fixed assets for each property you are developing and keep allocating purchase price of property and directly attributable expenses wholly exclusively for that property only to that account untill that property is ready for intended use. General overhead should not be tagged in this account e.f your general business insurance etc

This way at least year end accountant can know what to do with these cost especially development costs, depending which frame work is used for final accounts i.e FRS105 or FRS 102, you don’t need to worry about that complications for now

Fantastic, thank you. Does it make a difference if some of those costs are related to temporarily renting them out while we apply for planning permission? The main business is developing, not renting / investment…

If I’m slow getting back it’s the dog demanding a quick break!

Once property is ready no more capitalisation generally, renting related costs would be admin

Capitalisation meaning adding to the capital, ie improving the asset I will sell, and admin meaning part of the trade of buying and selling assets? Dog got walked.

To understand this further, when you say “Generally, Purchase price of a a fixed asset and any costs incurred to bring the asset to the location and condition needed for it to operate in the manner intended are capitalised” - does this mean the additional associated costs (as listed by Newbie) sit on the balance sheet until that asset (Property) is sold?

However, the actual Solicitor fee (to do the conveyancing) is “Professional Fees”?

A further follow up on this as I have been doing some more research.

Am I right in thinking that “Generally, Purchase price of a a fixed asset and any costs incurred to bring the asset to the location and condition needed for it to operate in the manner intended are capitalised” should be put as Professional Fees in QuickFile as well as the Conveyance Fee so that it is treated as a Capital Expense by excluding for tax, however does not sit in the Fixed Assets section of the Balance Sheet and that should just be the property purchase price.

Thank you in advance.

Hi @Sachin,

It would be best to check with your accountant for this to make sure that it is allocated correctly

Sorry but I’m unsure what question is as it doesn’t seem to have changed since your last post. What research did you do and what did you discover?

Appreciate that Beth, just trying to understand if the principle and my thinking is right.

Initially I had thought Capital expenditure was tagged as a Fixed Asset with the property price.

But reading further, I believe it is an expense but one that is disallowed for tax exemption against profits and so should be tagged as Professional Fees so is an Add Back, and does not sit on the Balance Sheet as an Asset anywhere.

I’m happy to send an example to someone to have a look.

It would sit on the profit and loss but the add back will occur on the ct600. So when calculating your corporation tax make sure you calculate it as if you didn’t include it in the profit.

Thanks @Paul_Courtier, I think I am getting there.

I want to make sure the tagging is working correctly as the little guidance note on the “Chart of Accounts” in QF says to post Stamp Duty to “0012 Capital Expenditure”.
If one was to do that, it sits as a Fixed Asset on the Balance Sheet, which I’m not sure if it should?
It gets treated in all the calculations the same way, as if it was tagged as Professional Fees (for tax), but I don’t think it should be “0012 Capital Expenditure (Asset)”.

Sorry about all the questions, I am trying to understand this as a self learner.

Stamp duty is a capital expenditure. So that is correct. And it’s also part of the fixed assets because without that cost you wouldn’t have aquired an asset.

So in that case, does the Stamp Duty (Fixed Asset) sit on the Balance Sheet until the Asset is sold along side the value of the Asset itself?

But, all the other fees (Searches, Conveyance, etc) don’t sit as Fixed Assets, just put through as CapEx on the P&L?

Thanks again.

Any expenses incurred in the acquisition or disposal of an asset is by nature capital expenditure. Capital expenditure doesn’t reduce profit on which tax is charged on. So yes it can sit on the p and l as an expense, but its written back when calculating corporation tax. The actual relief comes when the asset is disposed of.

For the best treatment of capital expenditure it would be wise to seek an accountant who can explain it to you and the process that’s involved.

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