Buying luxuries and unnecessary equipment for business

Shit, are you my accountant ? 😉

What?

Unless HMRC take an interest...pffft.

Take an estate agents whose staff all have £2k MacBook Pros. Clearly unnecessary item for the job, but you could argue that it gives a premium impression to customers and helps keep staff happy.

You need to look at the cost of ownership across the life of the equipment. A decent business-class laptop (either Windows or Mac) will run fine for ten years and not constantly annoy you with freezing under load like really cheap stuff does. When you're busy, you don't want to be losing time because you tried to cheap out on your laptop. Also, if you have to haul it around town, something light and with good battery life will save you a ton of misery.

MacBook Pros aren't lightweight so not suitable for 'hauling around town'.

I seem to remember the term “wholly and exclusively” being a key term in HMRC guidance for business expenditure.  Many accountants advise their clients to spend money on renewing assets to make full use of allowances before paying tax on profits

I can see that better / more reliable kit is clearly justified expenditure, how many professional tradesmen use B&Q own brand power tools vs DeWalt and Makita

But a lot is just image and creating the 'experience' - on the industrial estate near me there's a Jaguar showroom that has plush leather all round, posh coffee, etc., just down the same road is a used car trader on a gravel forecourt with a portacabin as office. They both sell cars in the end.

Quite a few friends who have their own business used to tell me how their accountant had got a new bike put through the books. We no longer have those type of conversations now I work for HMRC.

Whole I wouldn’t care if my Jaguar dealer operated out a portacabin, i can see why they'd be spending money to make their target market feel more cosy.

Yeah obvs our top-end MacBooks and iPads and iPhones and AirPods are all entirely necessary for work and the more you spend the more tax you save so no point skimping.

My wife did balk at the idea of buying a car for work purposes though, given that we work at home.

What?

good night last night was it OP? 😂

Quite a few friends who have their own business used to tell me how their accountant had got a new bike put through the books. We no longer have those type of conversations now I work for HMRC.

Because it's totally legal, (and uses the employer side of the C2W 'legislation').

When we ran our old business we'd also stay in decent hotels - are you saying we should've stayed in cheap (shit) ones instead?

OP Smacks of jealousy if you ask me.

Many accountants advise their clients to spend money on renewing assets to make full use of allowances before paying tax on profits

Hiding profit from HMRC and spending money on yourself pre-tax - obviously it goes on. A lot. See also cash in hand.

HMRC barely have the resources to resolve large-scale fraud - there's no way they can catch hundreds of thousands of people skimming off the top. Loads of businesses furloughed employees during covid, then made them work like normal. How long do you think it would take to get through that lot and prove it? Then how long to actually get the money back?

There are a bunch of HMRC rules about personal use of stuff that might answer some of those points as regards sole trader/smaller companies.

In answer to the underlying question do businesses spend money on kit that is greater than their current / short term needs of course they do. Sometimes it makes good business sense and sometimes it's lack of controls, vanity and poor management.

In the same way that in some businesses there is empire building/"bling culture" and others it can be carefully targeted.

There's loads of reasons including board room vanity to poor decision making, keeping staff happy (e.g. a BMW and a MacBook for your sales rep not a Dacia and a discount netbook), impressing customers (e.g. car showrooms - although the OEMs generally dictate standards there), sometimes because the finance deals on nicer kit with better residuals are better than the ostensibly cheaper options, plans for hockey stick revenue growth, because you have a tech geek doing the specs and noone controlling them.

That fancy head office with good coffee - does it keep staff and clients happy and make a good environment to do business that saves you staff and client churn? Has it got the latest energy saving tech? Does it have room for your growth plans or are you going to close a satellite site and bring more people together. One person's business case is an outsider's vanity project.

It happens the other way round just as much. Companies buy kit that's not up to the job and find they have productivity and quality problems or wound up and unhappy staff that are trying to do their job with half the right tools.

Either in extreme is potentially destructive and if done in an uncontrolled manner without the right financial assessments you're fairly likely to be seeing someone like me professionally at some point to work out what's got to be done with the broken shell of the business.

Edit - excuse the disjointed paragraphs first cup of tea just kicking in and I'm typing on the phone.

So who should make the decision of what is the correct level of car / coffee / sofa / board room table?

When they spend this money it is gone.

If they kept the money some of it would have gone to the taxman and some to their pocket, but they chose to spend it, not keep it.

When they spend this money, it pays the wages of whoever they bought it off, and they will pay some tax and buy things of someone else who will pay some tax.

I'm happier they are spending money rather than hoarding it as that's what makes an economy.

10 years ago I worked with an IT contractor who had a VW camper as a 'mobile office' for working away from home a rib for 'client entertainment' and a chromed harley as his company vehicle.

Whenever he bought a round of drinks he'd retain the receipts to claim.  Whilst us scummy PAYE's had to suck up the full cost.

Jealous?  Just a bit.  Earning 3 times as much and playing the tax game.....

There may be a tax saving in having a fancy motor put through a business (and then available for personal use), but it's still an expense to the business - so this kind of thing is largely self-regulating and not worth HMRC's time and effort to attempt to police.

With regards to supplying staff with fancy laptops, what real benefit-in-kind do you think the estate agents are getting from them?

Loads of it goes on. Wife worked for a bloke that put virtually every living expense through the company, so it all went to directors loans, then got taxed as a benefit, that was then paid via the 'company' and again went on director's loans - revolving money.

Couple of blokes I worked for in a big construction company used to run all sorts of stuff through the business. One even had one of the 'site' staff virtually as his house full time doing DIY and various extensions on the property.

Or the example of getting a motor for work, then having a massively expensive audio/media system installed for 'the kids'.

10 years ago I worked with an IT contractor who had a VW camper as a ‘mobile office’ for working away from home a rib for ‘client entertainment’ and a chromed harley as his company vehicle

A lot of that would raise some questions if audited.

Are businesses not allowed to have nice stuff comrade?

I bought a fancy coffee machine through the business, it was entirely necessary for productivity.

We did get a sever audit once where HMRC went through all receipts. They don't like supermarket purchases and asked what was the business need? It was for toilet paper and cleaning materials, without out which we said the warehouse and staff would be covered in shit. They left us alone after that.

Re: hiding profit, if it looks like you are going to make a profit and therefore pay corporation tax, you can reduce that by buying stuff like Macbook Pros, and what will serve the business better? Paying more to HMRC or having some decent new laptops?

I just think all businesses particularly charities need a swimming pool complex and spa to help them with staff morale

Conversely my sister recalls one of her friends assuming that "putting things on expenses" just meant free goodies for her rather than it actually coming out of her (small) business accounts which was all her own money anyway!

Quite a few friends who have their own business used to tell me how their accountant had got a new bike put through the books.

I believe it is allowable if the bike is used for commuting to the normal place of work (which of course it will be 😉 ). As a partnership, it's a tax-deductible expense, as a director of a business I assume it would be via a Bike To Work scheme.

HMRC barely have the resources to resolve large-scale fraud – there’s no way they can catch hundreds of thousands of people skimming off the top.

Those staff are quite expensive to run too. The skimming is not worth their time or effort.

Since our local bank closed I simply must have an emtb to get to the nearest one.

I just think all businesses particularly charities need a swimming pool complex and spa to help them with staff morale

Or a luxury motorhome, if in the business of politics?

I just think all businesses particularly charities need a swimming pool complex and spa to help them with staff morale

I know of one public organisation who were building a new site and when the cost cutting started the staff argued that they most definitely needed a meeting room that was big enough for the entire workforce to congregate. Somehow that "meeting room" ended up with a sprung wooden floor that was marked out for badminton, basketball, 5 a side etc.

as a director of a business I assume it would be via a Bike To Work scheme.

You don't need to do the second bit, i.e. pay for it from salary.

Company can just buy the bike, and it's 'available' as an non-performing asset.

Assumption...

Take an estate agents whose staff all have £2k MacBook Pros. Clearly unnecessary item for the job, but you could argue that it gives a premium impression to customers and helps keep staff happy.

Or take a builder who has just his own van, he has a high spec model with alloy wheels and a few options, and he’s gone to town with all sorts of flashing light accessories. I’d say he probably only has that just because he likes it.

Finally a business who owns and operates quite a bit of plant and machinery to do their work. The owner loves having and using all this kit. So he has way more of it than is sensible for the size of the operation, has oversized and overspecced plant for the jobs they do, and replaces them with new after a year or two despite them not having done much work. I guess in MTB terms it would be an XC fitness coach sole trader that runs a fleet of £10k enduro and downhill bikes as business equipment, replacing them every two years.

Another example, local gym and outdoor fitness coach which is around the place in a Mercedes 4×4 pickup. Carries a few fitness balls, cones, and hoops in the back. Could easily do with small van.

What a strange thing to query!

It's not just businesses, you could apply your questions to almost everything in life - why have a sofa when you could sit on the floor, why should a single person have a double bed, etc, etc.!!

It’s not just businesses, you could apply your questions to almost everything in life – why have a sofa when you could sit on the floor, why should a single person have a double bed, etc, etc.!!

I think OPs issue is that businesses pay tax based on the profit they make, so if they fritter all that profit on MacBooks and posh pickups, that’s less profit to be taxed.

Finally a business who owns and operates quite a bit of plant and machinery to do their work. The owner loves having and using all this kit.

I’m sorry, your point is?

If it’s used just for work. End of story. Buying the minimum sized van or the most basic computers or plant you can get away with might be short sighted. The needs of a business often grow; having the assets ready for change could be good planning.

But a lot is just image and creating the ‘experience’ – on the industrial estate near me there’s a Jaguar showroom that has plush leather all round, posh coffee, etc.

That will all be specified by the brand and the dealer has zero say in the matter. They will be regularly audited on the quality of their reception area, service waiting area etc and if anything isn't up to standards they will be forced to rectify.

The wife works for a major manufacturer and her job consists of 'your show room isn't up to scratch, you need to spend x million fixing it or we'll de-franchise you'. It's also, not a hollow threat, they regularly serve notice on dealers.

To allay the OPs concerns, the more MacBooks (among other expensive IT stuff) I sell, the more I earn, the more tax I pay, so swings and roundabouts.

I think OPs issue is that businesses pay tax based on the profit they make, so if they fritter all that profit on MacBooks and posh pickups, that’s less profit to be taxed.

OK, I get that, but Macbooks and posh pickups don't pay the mortgage or buy food - so these things can only be bought when there's enough profit left over after the basics in life have been satisfied.... i.e. 'living'.

To allay the OPs concerns, the more MacBooks (among other expensive IT stuff) I sell, the more I earn, the more tax I pay, so swings and roundabouts.

Could you not just sell those Ye Olde hand-held chalkboards instead?

In the last month, I’ve been asked to price a DOT matrix printer, and windows XP, so close enough…

I bought a dog guard for a Land Rover once off a guy who had been given a budget to choose his own company car.
He chose a Land Rover Defender, which cost nowhere near his allowed budget, so he added on every possible extra he could think of, including a dog guard that he had no use for and immediately removed and sold.

I am staying quiet about one of my old employers (a "sustainable" product seller) who had a director with not one but two Aston Martin's - one as company car and one we knew had be paid for by company, could never really tell who / justified / held / allocated...it was kept at the back of the storage hangar for dry weekends and track days only.

And of course there is the local authority who purchased a few really rather choice open canoes and white water kayaks which were never seen stored at the outdoor centre, but funnily enough the boss had the exact same boats in his garage and always attended the seasonal stock take to 'tick off' the boats as being present...

It has always been so in some organisations.

OK, I get that, but Macbooks and posh pickups don’t pay the mortgage or buy food – so these things can only be bought when there’s enough profit left over after the basics in life have been satisfied…. i.e. ‘living’.

but if they aren’t bought, or cheaper ones are bought, there’s more left over for the good of the country

who had a director with not one but two Aston Martin’s – one as company car and one we knew had be paid for by company, could never really tell who / justified / held / allocated…

you should have asked for a go in it.
I assume it would have been classed a pool car to avoid paying BIK on it .

but if they aren’t bought, or cheaper ones are bought, there’s more left over for the good of the country

TBF I can imagine (irrespective of others' comments about the flow of money through the economy) that if you put every single small and medium-sized business in the entire UK together and calculated their combined stretching of what are, at the end of the day, legitimate business expenses, the figure would be far, far smaller than the organisations that do all they can to avoid paying their due taxes (ie, the likes of Amazon).

but if they aren’t bought, or cheaper ones are bought, there’s more left over for the good of the country

It's not quite that simple.

Buying a slightly nicer laptop than is strictly necessary puts more money back into the economy, which then gets taxed elsewhere (eg the salary or bonus of the MacBook salesperson) etc. Those businesses then grow and employ more people etc.

So its not as simple as the money is lost, it just circulates via a different path.