How to unlock tax relief for your business: Capital allowances demystified

These are austere times, with businesses under constant pressure to slash costs and run as efficiently as possible in order to turn a profit. So it will kill CEOs to know that they may unknowingly be sitting on a substantial tax windfall in unclaimed capital allowances, perhaps worth hundreds of thousands of pounds.

Capital allowances are a form of tax relief on items (or assets) bought for use within a business. They allow commercial property owners and many leaseholders to write off assets costs against the taxable profit of the business.

Tools, machinery, office or kitchen equipment, computers, vehicles, pieces of plant and factory equipment may all qualify for plant and machinery capital allowances. Any accountant worth his salt should pick up on these, so the chances are your business is already claiming for these items.

However, certain fixtures and integral building features, such as electrical wiring, cold water systems, heating and air conditioning systems and lifts may also qualify. Claiming requires a level of specialist expertise beyond what a general practitioner could be expected to possess, meaning these are often missed or inaccurately assessed and processed.  

 

Allowances are available on items of  plant and machinery, some office equipment, fixtures and fittings and integral features. Capital allowances are often inaccurately assessed and processed by accountants, meaning that the majority of businesses are missing out on significant tax benefits.

Andrew Stanley, founder of specialist tax adviser STax, claims many businesses could unknowingly be sitting on a substantial tax windfall, perhaps worth hundreds of thousands of pounds.

What are capital allowances?

Capital allowances are a form of tax relief available to commercial property owners and many leaseholders on items bought for use within the business. They apply to expenditure on things such as plant and machinery, some office equipment, fixtures and fittings and integral features. Capital allowances are often inaccurately assessed and processed by accountants, meaning that the majority of businesses are missing out on significant tax benefits.

What are the benefits of claiming capital allowances?

Accurately assessing qualifying items and processing an effective claim will in many cases form the basis of a substantial write off against the profits of your business, resulting in a lower tax charge or in some cases a cash rebate for previous years. 96% of businesses are estimated to be under claiming their rightful capital allowance tax relief - to the tune of tens of billions of pounds. Individual claims can sometimes amount to as much as 35% of the value of a freehold i.e. £350K of tax relief for a building bought for £1m.

Why are so many businesses missing out on tax relief?

The rules governing which items are eligible to be pooled for this form of tax relief are complex and vary significantly from building to building and across different industries. It is crucial to take professional advice from a capital allowances expert to ensure every eligible item is included in the pool. Typically businesses can claim on items that are used in the running of a business, such as heating, security, general power, fire alarms and even carpet! Whereas a good accountant should pick up assets such as computers and phone systems, many fail to include less obvious items, especially integral features or ‘within the wall’ items. Consequently, most property owners are only claiming the tip of the iceberg while most of the value remains hidden from them.

Why do I need to claim now?

Capital allowances rules state that only one owner is able to take full advantage of the available tax relief during the lifetime of the building. Legislative changes enforced by the 2012 Finance Bill changed the way capital allowances are dealt with and in many situations a deadline of April 2021 has been set for any unclaimed capital allowances. Businesses wishing to unlock tax relief need to act now or risk losing this major tax benefit.

STax is a firm of tax advisers specialising in capital allowances. For further information visit http://www.s-tax.co.uk/capital-allowances