What are Capital Allowances?
Capital Allowances are a very valuable form of tax relief against certain expenditure on commercial property. This is in lieu of accounting depreciation, which of course does not provide tax relief.
The legislation can be complex, however, the UK capital allowances tax regime is one of the most generous and should be used to best effect to support your business.
To claim capital allowances the claimant must be a taxpayer, the expenditure must be capital in nature and used in the course of the taxpayers trade. Claims can be made in relation to commercial property purchase, construction or refurbishment costs.
There are numerous categories of qualifying plant and machinery, some common items:
- Air conditioning, heating & ventilation installations
- Electrical installations including power & lighting
- Fire alarms & fire fighting systems
- Security & access control systems
- Sanitaryware
- Passenger/goods lifts, dock levellers
- Fixtures, fittings & furniture
- Carpets
- Thermal insulation
Why consider Capital Allowances?
- Simply, effective consideration of capital allowances will significantly reduce tax liabilities and can in some circumstances lead to repayments by HMRC.
- If a company does not have taxable profits or the capital allowances exceed the profit, a tax loss is created which can be carried forward extending the period when tax may be due.
- The likely tax saving can be considered during feasibility / tender stage of a project and ease or remove the need for value engineering reducing the extent or specification of the works or increase future investment expenditure available.
- For a property investor the capital value can be increased.
- Capital allowances are a rare form of tax relief which on commercial property can be retained on disposal of an asset or passed to a purchaser with the correct contractual provisions.
Why seek expert advice?
- Capital allowances are often considered as relevant to purchases of office equipment, furniture or equipment. Where there are single purchases of plant, machinery and equipment with an invoice, claims are normally straight forward and captured.
- Where there is expenditure on commercial property with a contractor or various trade contractors there will be qualifying and non-qualifying expenditure. The cost detail, if available, is unlikely to provide a full breakdown and identify all claimable costs. This is where a quantity surveyor and capital allowances specialist can analyse this expenditure and extract or value all the items which qualify, even if they are not quantified in the pricing documentation.
- Correct categorisation of the expenditure to maximise the cash-flow benefit, considering the Annual Investment Allowance, Full Expensing, First Year Allowances, Revenue Expenditure and Land Remediation relief.
- Consider all capital expenditure on the property, reconciling the report to the Fixed Asset Register, ensuring that no expenditure is unconsidered and maximise the overall value.
- A specialist will prepare a robust claim reducing the likelihood of any enquiry / challenge by HMRC.
If you would like to find out more about Capital Allowances and how we can support you, please contact us.
