It is important for taxpayers to ensure that they tap in to all the standard tax allowances and reliefs to which they are entitled. The capital allowances code is a complex area but one where significant tax allowances can easily be gained (or just as easily lost!), especially when it comes to commercial property.
If you are undertaking a refurbishment or building new commercial premises, it is reasonably straight forward to obtain professional advice on what expenditure qualifies for capital allowances. However, if you are a purchaser of a second hand property, you may only make your future claims to capital allowances on plant and machinery and fixtures (“fixtures”) within a building on the amount of the capital allowances pool already computed by the vendor. Where the seller has made a claim for capital allowances then the parties will need to agree a capital allowances election for the allocation to “fixtures”.
So how do you establish claims already made?
It is not always easy to find out what the seller has claimed/pooled to date and so enquiry will often need to be made of their accountant. This may highlight expenditure that qualifies but where claims have not yet been made.
How do you tap in to unclaimed allowances?
If claims have not been made previously you will need to agree with the seller that they will identify any additional qualifying expenditure that can be claimed. This additional amount can be then be pooled by the seller and passed over to the purchaser following completion.
Ideally the parties should agree the issue of capital allowances at the time of the contract negotiations. If, however, agreement cannot be reached at this stage, then appropriate wording will need to be included in the contract to allow the parties to finalise the capital allowances allocations post completion. There is then a two year window to sign the capital allowances election so the key point is to get the wording in the contract right at this stage. Failing to pay attention to this at the acquisition stage of a commercial property can cost you dearly in lost allowances.
What other capital allowances claims could be made?
As part of the government’s strategy to tackle climate breakdown, the introduction of Enhanced Capital Allowances provides businesses with an opportunity to obtain tax relief in relation to investment in energy-saving plant or machinery. There is a list of approved items on which claims can be made but these entitle the claimant to 100% of the cost incurred so may be advantageous to cash flow as well as the environment.
Are you claiming R&D capital allowances?
Whilst R&D tax credits grow increasingly popular R&D Capital Allowances (RDA) are going unnoticed despite them being a first year’s allowance for individuals and partnerships as well as companies. They can be claimed on the entire building fabric or part of, rights over the building or the plant and machinery (fixtures). This is an area we can consider with you to see if relief is available.
Have you considered BPRA?
A further relief known as Business Premises Renovation Allowance (BPRA) may also be available for the costs of conversion or renovation of empty business premises in designated areas.
Although some of the main areas of claim have been noted above, this area is a complex but very legitimate way of reducing the tax burden so please ensure you contact Jacqui Gudgion or one of our corporate team to take professional advice.