Capital Allowances Claims Commercial Property - The Basics

Posted by plummy1 on Thu, 12/04/2012 - 18:01 in Blogs 1865 3 comments | report

I recently employed the services of a marketing company to help us create some more business for our capital allowances services. As part of this they asked me to draft some basic information on capital allowances claims on commercial property so that they could understand the principles in a little more detail. Once I had written it I thought it was a fairly good summary of the key points so I am reproducing it here as a blog. Enjoy!

Who can claim them?Anyone who incurs capital expenditure in the course of their business can claim them for example if you buy a computer or van. Obviously for our purposes we are talking about expenditure on commercial property whether this is buying a freehold or re-furbishing a leased property. Commercial property includes furnished holiday lets but excludes buy-to-lets. What can be claimed?The governing legislation is The Capital Allowances Act 2001. Under the legislation you claim for plant & machinery which includes items such as heating systems, air conditioning, electrical systems, hot & cold water systems, lifts, sanitary ware, and even things like door handles and door closers. Sometimes it is easier to talk about the things which are excluded which is the building namely walls, windows, doors and staircases. The claim will also include the cost of shipping and fitting these items not just the cost of the components plus any professional fees which can be apportioned to them. Why claim capital allowances?Capital allowances protect profits from taxation. Companies and individuals are normally taxed on their net profits after the deduction of day to day revenue expenditure. Capital allowances allow a company to protect some (or in some cases all) of their net profits from taxation over a period of time. This means that £1 of capital allowances reduces a taxpayers bill by 20p for a 20% tax payer or 40p for a 40% taxpayer etc. Obviously claims can run into hundreds of thousands of pounds depending on the cost of acquisition and refurbishment. We have a list of case studies on our website which may be useful to look at:- http://www.curtisplumstone.com/capital-allowances-case-studies/

Why don't accountants claim for these commercial property related allowances? i) They think that claiming capital allowances will have an effect on the Capital Gains Tax payable if the owner sales the property which is incorrect. ii) They normally claim what are termed loose chattels on purchase of the property which are things like carpets and furniture. As these are the figures placed in the purchase contract they believe they are then binding. However the HMRC accept claims because the values are based on the legislation as they are not bound by the purchase contract. iii) They believe that all the tax relief will have to be paid back on sale of the property. This is referred to commonly as the claw-back. Again untrue if you have engaged the right capital allowances claims company to undertake the original claim who can then provide expert advice to the owner, his accountant and his solicitor which is free of charge. What makes a good capital allowances claims company (or why should people talk to me?) i) A free of charge up-front estimate of the likely success of making a claim including fees. ii) No claim = no fee. If we find out at any stage a claim is not possible or advisable we will let the property owner know the reasons and there will be no charge. iii) We employ surveyors who are also tax qualified so all the work is completed by one person with all the experience and knowledge necessary. iv) We work on tight margins, keep overheads low and therefore represent excellent value for money. v) Our fees include all negotiations with HMRC if required. Advantages to Commercial Property Owners? i) The initial tax rebate commonly covers the cost of fees and provides a surplus. ii) Commercial property owners pay less tax year on year. iii) Due to recent legislation after April 2014 buyers of property will be expecting a claim to have been carried out or the property may be devalued in their eyes.

Comments

Capital allowances

Paddy H | Fri, 15/06/2012 - 15:53 | Permalink

what do you think of the validity of this article?

http://www.capital-allowances.worldfinance.com

Apologies for late reply.

plummy1 | Tue, 31/07/2012 - 23:40 | Permalink

Dear Paddy H.

I don't think it has actually been written by Lovell's Consulting but is obviously written to promote their services. Was it written by you by any chance? What I will say is that Lovells have an excellent reputation in the market (regardless of the quality of the article) and I have subcontracted work to them myself knowing the quality and pricing were excellent.

Regards

John

thank you for this article. i

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Capital Allowances Claims - I am not an accountant but nobodys perfect.

This blog brings me back to a favourite topic of accountants and their reluctance to engage with specialist capital allowances firms for the benefit of their clients who own commercial property. Having now worked with some of the top specialist capital allowances professionals for the past year and spoken or corresponded with accountants working at all levels. Here are my conclusions (in no particular order).

1) "I can't admit that I haven't picked up on this"

Some accountants are fully aware of the potential for making a capital allowances claims for their clients but have only come to this realisation in recent years. They are now in that awkward position where they have had a client for a number of years who owns commercial property but they have not advised them to make a capital allowances claim. Result they keep quiet and hope that the client either never talks to a specialist of if they do will not believe them over their accountant.

2) "I'm not letting a third party anywhere near one of my clients"

Accountants are worried that if they advise a client to use a third party capital allowances specialist that there is a real reputational risk. The accountant perceives that if the capital allowances company makes a mistake this will reflect badly on them and their practice and that they could lose their client. This is a tangible concern and there are some capital allowances claims companies where you an accountant could run this risk. However my advice would be that like any other organisation that relies on an outside provider if you do your homework thoroughly it does not take long to realise who are the experts and who are not.

3) "Any advantage the client gets now will just be clawed back at a later date by the tax man"

There are so many misconceptions about capital allowances claims that it is not possible to list them in this short piece. One of the most widely held is that undertaking a capital allowances claim devalues the property and therefore when it is sold it will be subject to a higher level of Capital Gains Tax. The first statement is untrue and therefore so is the second. If anybody wants to know the legislation that explains this in more detail please let me know and I'll e-mail the evidence.

4) "There is not enough in it for me"

Although it may be in their clients interest accountants point out that the time they have to spend devoted to dealing with a capital allowances claim could be better spent making more money for themselves elsewhere. Even though most capital allowances specialists are happy to pay over commissions to accountants they look at in terms of the value they will gain rather than their clients.

5) "I look after my clients capital allowances claims already"

This can be born out of a lack of understanding of the full scope of the Capital Allowances Act 2001 and the full interpretation of "plant and machinery" and "integral features" as they relate to commercial property. Accountants are very conversant with the claiming of things such as furniture, carpets and other loose chattels but remain blissfully unaware of the inherent fixtures within commercial property which may also be claimed if the work is undertaken by a specialist surveyor preferably with tax qualifications.

6) "I can do this myself"

Lastly and this is always well intentioned, we know of accountants who make the effort and do undertake a capital allowances exercise themselves especially where the nature of the expenditure on a property or refurbishment has been fully broken down in a schedule of rates or bills of quantity. In these cases accountants have shown that where they make the effort they have been able to identify a relatively high percentage of the capital allowances that were allowable. Unfortunately we also know of cases where they have claimed a very low percentage of the total capital allowances available or claimed for things which were not allowable at all.

A good example of this is where an accountant had a client with a large hotel costing £5m. The accountancy firm calculated that the capital allowances available to be claimed were in the region of £1m but when they commissioned a capital allowances expert to carry out the work found out there were over £2m of capital allowances which were claimable.

I hope that the above does not come across as being too cynical as we speak to accountants on a weekly basis who are busy trying to extract as much value for their clients as possible. However with the HMRCs latest consultation on capital allowances legislation likely to limit what can be achieved in the future in terms of retrospective claims, many owners of commercial property will have missed the capital allowances boat and I believe the blame for this will lie firmly with their professional advisers.

John Plumridge

Curtis Plumstone Associates

02392 696815

jplumridge@curtisplumstone.com

www.curtisplumstone.com

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