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:-
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.