Capital Allowances for Fixtures & Fittings
What are Capital Allowances?
In short, Capital Allowances are a form of tax relief given in place of depreciation (which is not allowable for tax purposes) on qualifying items of plant and machinery. This extends to many fixtures in a commercial building (and some larger residential ones). Capital Allowances reduce your taxable profits, meaning you pay tax on a smaller figure and retain more of your profits.
What fixtures can I claim Capital Allowances on?
What Capital Allowances can be claimed on will vary from building to building and between different industries. These typically include systems like heating, security, general power, fire alarms and sometimes even the decorative items! These Capital Allowances eligible fixtures would have come into your ownership one of two routes: by undertaking a program of works (development, fitout etc) or by purchasing the property. In both instances you could be sitting on a substantial tax write off.
Capital Allowances from a property purchase:
The purchase price paid for a property is deemed to have contained an amount for the Capital Allowances eligible fixtures present in the building at the time of purchase. Because your capital expenditure is the purchase consideration of the property, not the sum of the components, you can’t simply claim the value of the fixtures even if you could identify them all. Fortunately, the Capital Allowances Act 2001 makes provision for this situation and allows us to calculate a fair and reasonable apportionment of your purchase consideration. The output of this calculation will identify the percentage of the purchase price you are able to claim Capital Allowances on.
These claims can often equate to a substantial percentage of the cost of property. Claims sometimes amount to as much as 35% of the value of a freehold i.e. £350k of tax relief waiting to be released for a property bought for £1m.
Is there a time limit to access these Capital Allowances?
There is no time limit on how far back we can look i.e. the purchase could have been many years ago. However, what was or wasn’t done during the conveyance can have a big impact on your entitlement to make a claim. Because of this, Capital Allowances advice is generally best given before exchange of contracts. However, here at STax we have a wealth of experience unpicking the history of past purchases and securing favourable Capital Allowances outcomes even where others have tried and failed!
Capital Allowances when a property changes hand:
Capital Allowances on fixtures not only represent significant opportunities but are now also a veritable mine field waiting to blow up in the face of the uninitiated this is never more the case than when a property changes hand.
When you buy or sell a property there are several requirements laid out in the Capital Allowances Act all transactions post April 2014 must comply with. Doing this generally requires a joint Capital Allowances election to be entered into by the parties. If this is not done both parties can loss all rights to the capital allowances, devalue their property and potentially face a snap tax charge from HMRC.
Getting your capital allowances ducks in a row during a conveyance is essential to maximising your outcome. STax has advised on a substantial number of conveyances and even though advice is best given before exchange on contract we area also often going back over old transactions looking to repair a fire damaged transaction. Contact us for a free no obligation appraisal of your holdings and position.
Capital Allowances from a program of construction works:
Picking up all the Capital Allowances eligible expenditure in a development or renovation is not always as straight forward as it sounds.
Often invoices and records will cover expenditure that is both eligible and ineligible for Capital Allowances. Because of this even a very knowledgeable general accountant is likely to miss a large proportion of the Capital Allowances available. When you layer in effect of correctly allocated, labour, apportionment of eligible professional fees and prelims and even expenditure on the modification an existing structure/land to accommodate new plant and machinery, we are confident of delivering a substantial amount of extra Capital Allowances.
To ensure you get all your Capital Allowances we will review and cross-examine all the available project information (invoices, design specification, bill of quantities, planning documentation, contract sums etc) and expertly survey the property to make sure that all Capital Allowances have been identified and claimed. This will normally result in a marked increase in the amount of Capital Allowances available. We also provide a consultancy service for the design phase of a project to help ensure all opportunities to build in Capital Allowances are exploited.
What are the Structural Buildings Allowances ‘SBA’?
For more recent projects there is also the availability of the Structural Buildings Allowance.
For projects started after October 2018 the residual structural works (i.e. approximately the total project less the fixtures) now attract an annual relief that can be claim on a straight line basis.
Whilst this is only 3% per annum, it is tax relief on money you have already spent that you perfectly entitled to claim and it’s a lot better than the old rate of 0%! Investing the time to correctly identify and claim your full entitlement is a no brainer.
Won’t my Accountants be doing this already?
Claiming allowances on movable items of plant and machinery (IT equipment, machinery, vehicles etc) is very much within the skills sets of most general practice accountancy firms. However due to the difficulties of accurately valuing systems imbedded in a property and the maze of case law in this area, the services of a specialist are required to access all of your due tax relief.
STax combines all the skillsets required to provide robust Capital Allowances advice under one roof, making us perfectly positioned to assist you in claiming your full entitlement to Capital Allowances.
We stress that not advising on Capital Allowances on fixture is no negative reflection on your general accountant. Most of our Capital Allowances work is referred to us by general practice accounting firms. Capital Allowances on fixtures is a highly specialised niche area of tax with over a 100 years’ worth of case law to be mindful of. Furthermore, providing effective Capital Allowances advice requires a marriage of disparate skills from taxation, accounting and quantity surveying that you simply won’t find in any but the very largest accounting firms in the country (KPMG, PWC etc).
If you are buying, own or have incurred capital expenditure on property and want to find out what you could claim, then please don’t hesitate to contact us today for a free no obligation Capital Allowances appraisal of your assets .
We only charge as a percentage of the unclaimed Capital Allowances we find and successfully claim. With no fixed fees or upfront costs of any format charged, as long are you are paying tax it is mathematically impossible to be anything other than better off working with us.
A s198 election is the normal mechanism for transferring capital allowances on fixtures during a conveyance. We see a lot of s198 elections, the vast majority are written so badly as to be legally void and subject to challenge by HMRC and tax savvy parties on the other side of the transaction. We know it happens because we are regularly engaged to advise these parties.
This can open your clients up to potentially substantial and unexpected loss. Getting this document wrong is not going to win you any friends!
Resources and CPD training:
We are happy to conduct CPD lectures and training for you and your team be at as part of our webinar program or even a visit to your offices. This training for you and your staff will allow the effective identification of areas of risk & opportunity, ensure compliance with the Capital Allowances Act and clock up a few more CPD points at the same time!
As well as providing advice direct to your clients we can also supply you with a number of resources, including:
• Draft emails to bring these tax related matters to you clients’ attention
• Assistance answering Capital Allowances section of CPSEs
• Articles for newsletters
• Model documents e.g. s198 elections
• Technical briefs for use within your practice
If you have a specific case you want to get some expert help with or simply want to find out more, please don’t hesitate to contact us today.