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Hard sell on embedded Capital Allowances report?!!

Specialist survey done over the phone, client caught in the crossfire!

My client was cold called by a Capital Allowance Specialist looking into a potential Embedded Capital Allowance claim for a Guest House.

I'm happy to co-operate with this, I've done so before and I have seen a fair few reports over the last 10 years. In this instance all goes well until I see the amendments to the Tax returns that they've prepared - they incorrectly have adjusted the Turnover figure and the Balance Sheet no longer balances, plus various other very, very basic mistakes. On delving further I find that a site visit hasn't actually been carried out, but a telephone interview was carried out with my client, the results of which were fed into a generic template. I have questioned it but they absolutely stand by their computations as it isn't written in law that an actual site survey be carried out.

In the meantime this company has telephoned my client belittling my concerns and promised 100% acceptance by HMRC, they have tried to persuade my client that it is perfectly acceptable to HMRC if no site visit is carried out. As far as I'm concerned this is a Specialist area that requires a site visit by a suitably qualified surveyor tin order to establish exactly what is in the fabric of the building and the MV of that in order to make a robust claim. Anything less would in my view be negligent and not justify a hefty fee.

My gut reaction is that this is absolutely not ok to make such a specialised claim without a full eyes on site visit by a suitably qualified surveyor followed up with a robust evidence based Capital Allowances report. The company in question are saying that I'm wrong and that no site visit needs to be made and they are applying pressure to my client citing other Accountancy firms that I can contact to satisfy myself of their success rates. The one that they mentioned to my client is a franchise arrangement, that I don't rate at all. I've been in this business for over 25 years, so have lots of experience, but finding it tough against this hard sell to my client.

I do feel strongly about this and everything about this company just feels wrong and my over arching wish is to protect my client. So short question is - is it ok for an embedded Capital Allowances claim to be based on a specialist survey conducted over the phone? If you have any other gems of advice then these too are welcome.


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22nd Jan 2019 09:42

The most important question surely has to be:

1. Does the report they have prepared look reasonable and sensible re items they have listed and the quantum attached to these or does it look daft?

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By Sparkly
22nd Jan 2019 10:16

Some things seem very generic and other items look to be inflated to me, but I'm not a qualified surveyor

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to Sparkly
22nd Jan 2019 10:31

Most surveyors these days are barely qualified so I would not let it worry you, the days when they received a rounded and broad training are long gone, you can now become a members of RICS without knowing quite a lot about quite a lot.

Try and find a recently qualified surveyor who can prepare a bill of quantities, tender documents, survey a building, advise on repairs and construction re same, do work negotiating a lease and sell a commercial property- the only ones I know who can do everything are age high fifties/sixties, so frankly being or not being a surveyor imho is no impediment- I would apply commonsense to their report.

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22nd Jan 2019 10:40

There is no statutory requirement for a site visit. Claiming P&M as an apportionment under CAA 2001 s562 only needs to be just.

However, failing to adequately assess the extent of P&M present at a property introduces unnecessary tax risks that are often not worth taking.

I am a Chartered Surveyor, and have specialised in capital allowances for almost 30 years. Whilst I have prepared claims without visiting a property, those are often the exception rather than the rule. I am sure that with an appropriate telephone conversation and a number of photos transmitted electronically, the cost of a distant site survey could be safely dispensed with and the report prepared would not necessarily be negligently done.

The bigger risks are often found within the due diligence carried out (or not!) on how to apply the restrictions at CAA 2001 s185 and determining whether any historic expenditure has been expensed or pooled previously.

In my experience, some firms that have a hard sell, trigger their contingent fees once the Accountant includes the capital allowances claim in a tax return, thus making the Accountant's "approval" the fee payment trigger. This is not quite the same as waiting for HMRC to enquire, or the enquiry window to expire.

One last point on "success rates". Whilst it would be a great marketing tool for me to claim a 100% success rate as every single capital allowances claim I have made for clients has been accepted, all without any material amendment; HMRC staff number erosion seems to be the biggest reason that capital allowances claims might not be enquired into It is not necessarily the quality or validity of the reports submitted.

For a capital allowances claim (which is after all an analysis of capital expenditure in the balance sheet) to adjust the turnover figure justifies your concerns far more than the omission of a site visit.

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29th Jan 2019 11:19

I would echo Piltdown Man's comments.

The tax return has to be "correct", not necessarily accurate (exact). In practice, that means that estimated figures are okay as long as it is more likely than not that they're fair and reasonable.

For modest business premises, such as a guesthouse, it might not be economic for a suitably qualified and experienced surveyor to carry out a capital allowances inspection. So a desktop exercise, based on answers to focused questions and other information provided by the client (eg, floor plans and photographs) may be acceptable to establish a reasonable filing basis in a cost-effective way. But the claim should still reasonably reflect the assets that are actually there and ideally be reviewed by someone who knows what they are doing. A "generic template" might not be a great sign, or it could just be an efficient way of working.

But if the claim is prepared on a desktop basis (resulting in a lower delivery cost for the capital allowances adviser, and potentially either a lower result, or greater risk, or both for the client) then it would be reasonable for the client to expect the fee to be reduced correspondingly. Not to be be charged a "hefty fee", as you say (although fees are always relative, so it's difficult to comment).

I would agree, as Piltdown May says, that the greatest risks in practice tend to be poor, or non-existent, consideration of the tax history. It is not always appropriate to prepare a straightforward apportionment of the purchase price (sometimes it is). Key risks are whether expenditure has already been written-off for tax by being expensed through the P&L as repairs, whether it has previously been pooled for capital allowances purposes, or whether there has previously been a sale with a low CAA 2001 s198 election.

Like any market, there are capital allowances firms who use high-pressure sales techniques and make exaggerated, misleading or sometimes untrue assertions. It would be surprising if they didn't have a 100% success rate, because HMRC operates a 'process now, check later' approach and HMRC/ the Valuation Office Agency are resource-constrained so don't look at most claims. 'Success' in this context is just luck and opportunism over the way self assessment works (the most highly regarded advisers would shudder at marketing themselves in this way). It's not a reflection of the adviser's true ability. However, an HMRC intervention could still follow later. If that happens is when genuine expertise counts, by having minimised risks in the first place and then effectively dealing with any queries.

If your client is subject to "hard sell" then that's unlikely to be a good indicator. The same applies to your comments about "very, very basic mistakes" (such as adjusting turnover - what's that all about???) and your instinct that everything "just feels wrong" about the adviser. Trust your intuition. But if these things don't concern your client, I'm not sure what will ...

There are plenty of professional capital allowances advisers who don't resort to hard sell tactics and will give your client a realistic assessment of the opportunity and risks, and charge a fair fee for the work and value involved. I would suggest your client considers shopping around before taking the plunge.

I would also recommend asking for the names of the people who will do the work, and oversee it, so you can check them out and compare them with other advisers. What are their qualifications, background and relevant experience? If the firm is cagey or won't disclose this, then that will tell you a lot.

PS the term "embedded" capital allowances is meaningless. It was made up to help sell capital allowances projects. It is unnecessary/ ambiguous, and has no statutory or other official meaning. A really good capital allowances consultant is unlikely to use it, except rarely in the most informal of circumstances.

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By Sparkly
29th Jan 2019 11:58

Thank you all for taking the time to reply particularly Three Toed Pygmy, my thoughts exactly regarding the 100% success rate claim which was being emphasised as a way to try and reassure my client and that had the opposite effect on me! To cut a long story short I was able to steer my client to an alternative specialist from another firm that was recommended to me via someone I have worked with before on a similar claim. The difference in contact is like chalk and cheese no wild claims of 100% success rate and a thorough site survey has been carried out now. I've never had a Capital Allowances claim in a Tax Return rejected either but would never dream of claiming that I therefore had a 100% success rate with HMRC!

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