Capital allowances are a commonly used and valuable form of tax relief that permit the costs of tangible capital assets to be written off against taxable profits. Businesses often overlook their eligibility and lose out on valuable tax refunds that could have been invested back into their business.
Whilst most businesses will be familiar with claiming such allowances for plant and machinery, many will be unaware of the entitlement to claim for certain “fixtures” or “fixed plant” – items integral to the fabric of a building. The building is effectively a machine providing various services to the business, including heating, lighting, security, air conditioning and so on. The relief applies to any property-owning business, whether carrying on a trade or earning rental income and even if the property was built or acquired many years ago, allowances can still be claimed.
Capital allowance claims on commercial property is a very specialist area of tax and is rarely undertaken by small to medium sized accountancy firms, this is largely because of the requirement for both a detailed prior tax history and survey of the property.
Small and large businesses alike claimed approximately £90bn in capital allowances in 2016-17 but there remain thousands of businesses who are completely unaware they can become part of this statistic.
The capital allowance claims process can be complex, but working with Cost Care Tax, you can be confident that each asset will be scrutinised against HMRC criteria before being submitted as part of your tax return. The capital allowance legislation is subject to continual review by central government and Cost Care Tax’s team of tax specialists work hard to remain up to date with the latest guidelines – so you’re in safe hands.
Changes in the capital allowances legislation during 2012 and 2014 had a dramatic impact on standard practice when dealing with fixtures on the sale of commercial property.
Since April 2012, the buyer of a commercial property has had to satisfy the “fixed value requirement” before they can claim capital allowances against fixtures purchased as part of the acquisition. In essence, this requires that the seller and the buyer agree on the disposal value of fixtures (i.e. how much eligible expenditure can be passed to the buyer) via a S.198 election within 2 years of the date of completion.
The subsequent introduction of the “mandatory pooling requirement” (introduced in 2014) requires that the seller identify and “pool” ALL qualifying expenditure prior to the sale (the capital allowance “pool” is a mechanism through which capital allowances can be claimed). Where the seller of the property was eligible to have claimed allowances but didn’t, the mandatory pooling requirement dictates that the buyer will lose any entitlement to capital allowances on fixtures included within the acquisition cost.
These changes have introduced important considerations for both parties in any commercial property transaction and specialist advice is recommended to ensure that the matter of capital allowances on property sale is handled efficiently and effectively. Cost Care Tax have over 20 years of experience of handling such claims and are able to liaise with solicitors who are unfamiliar with the correct procedures to follow in order to protect the allowances, be that in the interest of the seller or the buyer.
This is a difficult question to answer with a variety of different factors to consider, including the nature of the property, timing of the expenditure and the eligibility criteria. The apportionment of acquisition or build cost attributable to fixed plant & machinery will largely depend on the type of property and trade being carried on and can typically range from 5% – 50%. Properties in the hospitality or health care sector are likely to be at the higher end of such apportionment whereas warehouse and factory buildings are likely to be at the lower level.
Annual Investment Allowances (AIAs)
AIAs were introduced following the Finance Act 2008 and allows business to write off the cost of most items of plant and machinery in full against profits in the year in which the expenditure is incurred. Available for most items of capital expenditure, the AIA limit changes from year to year, currently sitting at £1m up to 31st December 2020.
Visit the Gov.uk website for the latest rates.
The AIA provides a welcome acceleration in the realisation of tax relief but is only claimable in the accounting period in which the expenditure is incurred. Retrospective claims utilising the AIA are possible but are restricted to recent accounting periods that are still open to amendment. It is important to act quickly in order to secure your entitlement to claim against the AIA.
Writing Down Allowances (WDAs)
Most eligible business assets can be claimed for using the annual investment allowance (AIA) but, in circumstances where this is not possible, tax relief for capital allowances is realised through the capital allowance “pools” and WDAs. Such circumstances include:
WDAs allow businesses to claim a percentage of eligible expenditure each year on a reducing balance basis. The percentage depends on the item in question, with certain items claimable at 18% per year and others claimable at 6% per year depending on whether they fall under the categories of General or Special Rate/Integral features expenditure.
In order to claim capital allowances, two basic requirements must be satisfied:
Our capital allowances claim process has been designed to save you time, maximise your claim amount and accurately value your assets where standard accountancy procedures can’t.
At Cost Care Tax, we have made thousands of successful capital allowance claims, utilising years of accumulated experience to diligently assess and review capital expenditure. We ensure that no stone is left unturned in order to maximise your capital allowance entitlement.
Are you an accountant seeking a tax specialist to manage your clients’ capital allowance claims? If so, please visit our accountants’ section for more information.