Following the 2007 Budget and the changes to the capital allowance regime, including the phasing out of industrial buildings allowances (IBAs) and agricultural buildings allowances (ABAs), it has been suggested in the tax press on many occasions that existing pools should be reviewed to ensure expenditure is correctly allocated into plant and machinery (PMA), IBA and ABA pools, and reclassifying these where they are not to ensure allowances are maximised post April 2008.
Unfortunately there has not been anything in the press to suggest how the reclassification works going forward. There appears to be several opinions on this.
1. Time limit for claim
S 3 CAA 2001 says that a claim must be included on the tax return. The time limit for making a claim or amending a claim is the normal time limit for making or amending a tax return.
This would suggest, where a partnership has a March year end they are out of time to make a claim or an amendment to years earlier than 2005/06.
If a claim is amended for 2005/06, by reclassifying the items in ABA to PMA, the claim would have to be a correct claim, therefore if the correct PMA were to be claimed you would have to go back and re-work the brought forward figure from the date of addition, claiming FYA and 25% annual allowances to arrive at the correct brought forward figure in 2005/06. This would mean that you would have a much lower brought forward figure than the one in the ABA comp so that you will have lost a substantial amount of relief. However see point 3 below.
2. Error or Mistake Claim
One capital allowance book suggests error or mistake claims can be done for incorrect claims made during that period.
If this is the case we can go back not later than five years after the 31st January next following the year of assessment to which the return relates. That is 2001/02.
However, it will only be the additions in that year that can be reclassified, not the brought forward figure.
3. Disclaimed Allowances
As you can disclaim PMA you could look at the previous years ABA claims as actually being PMA but disclaiming 21%ish (reducing balance v straight line) so that you do not reduce the balance brought forward on the correct claims going forward. However, the claim would have been made in the ABA box on the tax return.
Overall, the legislation is not clear on this point so we would appreciate guidance from readers.