DVD rentals and hiring to the public

Q: I recently started my own specialist DVD rental business and have purchased a substantial number of films to rent out and a few for general resale. Can I write off the total costs these goods against my earnings?

Guy, Hastings

A: Unfortunately there are no special tax provisions for your industry relating to the hiring of goods to members of the public.

The cost of purchasing films to be hired out should not be treated as stock, even if the films are eventually sold.

There are three different options available to traders and which ever method is used, the trader needs to be consistent from year to year. The three options are:-

1. The 'valuation basis' is available if the DVD’s have a ‘useful economic life’ of 2 years or less.  This is determined by the demand ie popularity of the title, rather than the 'physical' life expectancy of the item.

2. DVD’s for hire that have a ‘useful economic life’ of two years or more will qualify as plant and machinery. Capital allowances can be claimed on the discs that form the original library and any additions to that library. Any replacements that are sufficiently durable to qualify as plant will also qualify and from April 2008 they will qualify for the 100% Annual Investment Allowance, which is available on  the first £50,000 of expenditure.

3. The other option available is the 'renewals allowance', however this can be disadvantageous to the taxpayer because it only allows a deduction for the net cost of a replacement item, rather than the cost of the original item.

We would therefore recommend that you discuss the above with your accountant, in order to ascertain which method will be most beneficial for your personal circumstances.

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Small Business Tax Advice from TaxAssist Accountants