I would like to say that I never tire of writing about capital allowances claims on commercial property but to be honest that would be a lie. There are only so many ways that you can try and make the same points and maybe persuade accountants and their commercial property owning clients that they really should be assessing the benefits of making a capital allowances claim. Yes it doesn't benefit everybody to the same degree but if the property owner is making profits and paying tax then in my humble opinion their accountant should have it in their potential armoury of pro-active initiatives.
"Number 1" - Capital Gains Tax Position IS NOT affected by making a Capital Allowances Claim
I would be grateful to anybody who can explain to me why they think the capital gains tax position will be affected by making a capital allowances claim on a commercial property. An excellent article published on AccountingWeb in 2007 by Steven Bone of The Capital Allowances Partnership covered this one off as one of the most popular misconceptions among accountants. I have seen this myth debunked many times over by other capital allowances claims specialists but still it persists and is one of the stock questions we are asked before a letter of engagement is signed.
"Number 2"- There IS NO time limit on Making a Claim.
I have been told by accountants from small and large firms alike that their client purchased the property complete with all those lovely qualifying fixtures too many years ago to now be able to make a claim. This is another misconception. There is no time limit on when a claim may be undertaken although the capital allowances identified must be pooled in the first open tax year and the qualifying assets will still have to be owned in that open tax year. I should caveat this by saying that the new capital allowances rules brought in by the Finance Act 2012 do place some restrictions on properties purchased after April 2012 where capital allowances have already been claimed by the vendor but these changes are beyond the scope of this blog.
"Number 3" - The tax benefit received DOES NOT have to be surrendered on Sale of the Property
It is a commonly held belief that any tax advantage will have to be surrendered when the property is sold. Accountants often say that making a capital allowances claim merely creates a "timing issue". In reality when a property comes to be sold as long as a S198 election agreement is completed and the level of capital allowances given over to the buyer does not exceed the tax written down value of the fixtures then a balancing charge is avoided. The section 198 election agreement actually allows for the seller to keep any remaining benefit of the capital allowances provided they have an ongoing trade where they may be utilised.
"Number 4" - The Fixtures Figures in the Purchase Contract ARE NOT binding on the Parties
This may seem counter intuitive but the value of fixtures in the original purchase contract is more often than not understated and regularly covers only loose chattels such as furniture, possibly curtains and carpets. These figures are not binding on the parties because under the Capital Allowances Act 2001 Section 562 any allocation of qualifying fixtures and integral features needs to be undertaken using a "just and reasonable apportionment" i.e. a technical exercise carried out by a capital allowances claims specialist that separates out the value of the land, from the qualifying and non-qualifying elements of expenditure.
"Number 5" - Accountants have their own Agendas too.
Yes I'm afraid that a lot of capital allowances claims do not get made because of a lack of understanding of what may be claimed when a commercial property is either built, purchased, or re-developed. The world of accountancy does seem to be split into those who understand the benefits that a claim can bring and those that do not (see 1 to 4 above). At the risk of making myself even more unpopular on AccountingWeb there are even those accountants who know the potential benefits of making claims but for various reasons, some of which I am aware of, (and to a certain extent understand) do not wish their clients to engage a third party to provide a service that the accountant cannot provide themselves.
The point of this blog was to try and persuade a few more accountants that this is an area which could benefit some of their commercial property owning clients and dare I say it the accountant could even be seen as being "Pro-Active" by doing so.