Readers' forum - Business add back

08 December 2005

Issue: 4037 / Categories: Forum & Feedback , HMRC powers

In 1967, our husband and wife clients purchased a business consisting of a grocers and an off-licence with living accommodation above. The business and premises cost £60,000, which was apportioned as to (a) freehold property £56,600; (b) goodwill £2,000; and (c) fixtures & fittings £1,400.

The business purchase was assisted by a loan of £27 000 and the balance was from the sale of their private residence. Accounts have been prepared by another firm of chartered accountants with no add back for loan interest on the basis that more than one-half of the purchase price has been introduced into the business.
There are add backs of 50% for light and heat and rates and water.
HMRC have enquired into the tax return for the year ended 5 April 2003 and are proposing to add back 50% of the loan interest and to amend the previous years' computations back to 5 April 1998. HMRC say that 'in accordance with TA 1988 s 74(l)(a) the portion of the business asset utilised for the private dwelling was not occupied wholly and exclusively for a business purpose.
A proportion of the interest paid shouId...

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