Capital Allowances enable a business to write off the expenditure of certain capital assets against taxable income, reducing the tax liability, which means they are a valuable ‘allowance’. SMH Capital Allowances can assist you in all of these areas, with our very-experienced Capital Allowances expert.
There is no shortage of opportunity when it comes to considering expenditure on commercial buildings, it is applicable to owner occupiers, lessors and lessees regardless of whether this involves refurbishment, new builds, fitting-out works as a tenant, and the acquisition of second-hand existing investments.
The problem has always been a combination of a lack of; awareness of every claim opportunity and the availability of the appropriate valuation and construction cost expertise, needed to produce the correct documentation that will pass HMRC scrutiny. SMH Capital Allowances can assist you in this area, right from inception.
- We can provide an up-front forecast of the allowances, without obligation so the benefits are known before any client is asked to commit to fees. Fees are only payable if and when we certify the qualifying expenditure.
- Tax planning on new schemes and refurbishments at early design stage; this is where we can audit the proposed scheme so that you benefit from the maximum available Enhanced Capital Allowances. The advantage of this is that ECA’s qualify for 100% year-one cash benefits that otherwise may be overlooked by the design team, releasing much needed cash flow and accelerating the available tax relief. Our fees will be a small proportion of the likely savings.
Purchasing a commercial investment
Particularly on the acquisition of second hand buildings, the necessary due diligence must be identified and addressed before the building is purchased, or the purchaser will lose out and every subsequent owner too, possibly affecting its future investment value. This cannot be left to your lawyer as experience shows that the lawyer will rarely advise on ‘tax’ concerning the inherent tax relief that flows through from seller to buyer. You will need to seek advice from us before you exchange contracts because the entitlement to Capital Allowances must now be established as part of the purchase negotiations and a failure to address this early means a 98% probability the capital allowances will be lost to not just the current buyer, but all future owners. Just call us for no obligation informal advice.
Direct expenditure on refurbishment and new build
On direct expenditure including refurbishment, new build work, fitting-out under a lease agreement or capital contribution payments from a landlord to tenant undertaken through a programme of direct building works or a building contract, the rules are somewhat simpler as far as entitlement is concerned. The focus here should be on identifying all eligible items attracting allowances AND including all the relevant expenditure associated with the installation of an item, some of which are not so obvious and can in some situations include a proportion of the project’s professional fees, overheads and preliminaries.
The person incurring the cost(s) can claim valuable tax relief on the items classified as either plant and machinery or integral features; typically, parts of the mechanical and electrical work, sanitary ware, fixtures and fittings, carpets and floor coverings, etc there are over 100 possible categories if you know what you are looking for. A claim will have to be prepared and presented in accordance with strict HMRC criteria to be eligible, and appended by the client’s accountant to the annual tax return, for the benefits to commence.
The result is an entitlement to significant tax reductions – on a care home or hotel or similar building up to 50% of the expenditure may attract capital allowances. For other types like an office building 15% to 25% of the total expenditure is typically available, fit out work can be 75% and retail properties may be lower at around 10% to 15% of expenditure. Any relief on commercial property is worth investigating, it doesn’t cost anything to find out what could be available.
Examples of where your claim opportunities might be lurking
- Property investors or owner occupiers of commercial buildings acquired under a sale agreement over the past 10 to 15 years where the capital allowances have never been identified, it may not be too late to recoup this unclaimed relief today.
- On refurbishment projects it is not uncommon for 85% or more of the expenditure to qualify for relief if properly analysed;
- Enhanced Capital Allowances – specific energy and environmentally friendly plant and machinery can attract 100% relief in the year they are installed to include lighting systems and some mechanical equipment if they are specified in the design- early tax planning may help a building to be more efficient and more tax friendly on larger projects of around
- Since the introduction of the pooling requirement in April 2014, every commercial acquisition thereafter must be examined and clarified before contracts are exchanged in order to preserve a buyer’s entitlement to tax relief.
- Overage claims on purchases – in certain situations where the immediate seller held the property prior to April 2008, a new buyer may now be entitled to claim allowances, regardless of any other restrictions in place on certain integral features in the building, such as cold water supplies and some general electrical items etc which could be between 5% and 10% of the purchase cost.
- Charities – where a charity or non-taxable organisation buys a commercial building they need to ‘protect’ the future owner’s allowances entitlement at the time of purchase.
- R&D allowances (RDA) – R&D tax credits are widely advertised, but many claimants overlook RDA’s on the capital expenditure such as the cost of the structure in which the qualifying R&D activity is conducted. Any claims for R&D tax credits should be re-examined for a corresponding RDA claim, our experience shows that often this potential tax relief is overlooked where ‘boutique” R&D tax advisers are used, as they only advice on the tax credit relief.
- LRR land remediation on brownfield sites including asbestos removal is often missed as it is hidden away in site investigation reports.