Capital allowance claims: Outsourced or in-house?
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I’m a specialist business journalist and have a particular interest in tax and technology.
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Lots to consider!
This is an issue that comes up fairly often but it is an important one where large amounts of money may be at stake. It may be a question of horses for courses – if a client builds a modest extension to a property, the accountant may feel competent to handle it, but if there is a major property transaction it may be worth involving specialists.
Having seen this issue from many angles (author specialising in the field, publisher of books in the field, tax partner, independent consultant, tax director) here are a few observations that may be helpful.
1. The rules for fixtures (not just integral features, by the way) are complex and there have been important changes from April last year, with more to come next year.
2. There is no doubt that opportunities to claim allowances have in the past often been missed. Incorrect assumptions are sometimes made that a capital allowances claim will increase a CGT charge in the future, or that it is all nothing more than a cash flow exercise.
3. Tax planning issues have to an extent been turned on their head by the recent statutory changes. In the past, for example, a buyer might often have preferred to keep quiet until the transaction was completed. From April next year, that will never be appropriate. The new rules have brought new risks, for buyers, sellers and their advisers.
4. In some cases, the proper claiming of capital allowances requires valuation skills that most accountancy firms do not possess. However, the need for those skills is now reducing (though not altogether disappearing) as a result of the statutory changes.
5. There are good specialist firms, and there are some terrible ones. I have come across both. In the latter category, I have seen firms where the individuals concerned were genuinely selling cars or double glazing one year, and then decided that they could make a quick buck by selling capital allowances packages the next.
6. At the very least, a firm holding out as a capital allowances specialist should be probed with regard to their tax and surveying skills. Who will actually do the work and what qualifications and experience do they have? Do they understand the complexities of the recent changes?
7. Who will see the wider picture? There may be some good capital allowances claims to be made, but there may also be potential claims for land remediation relief or (in the case of a property refurbishment) a revenue deduction may be due for repairs and renewals. Are the specialists able to put the capital allowances in context? Nobody will know the client’s overall tax position as well as the accountant who has acted for years, so a healthy relationship between accountant and specialist is essential.
8. Will the specialist firm actually be competent to recognise the potential difficulties? These are at their height when looking at a property that was bought some years previously from a third party (which is very often the exact scenario being considered). Establishing the history of claims by previous owners can be extremely difficult in practice, but failing to do so can seriously jeopardise the claim for that historic expenditure. If your client pays a large fee now, but HMRC challenge the claim in 12 months from now, will your client get repaid?
9. How is the fee level pitched? It is normal to charge a percentage of the qualifying expenditure that has been identified, and there is nothing wrong with that in principle. But will the client be out of pocket in the first year? Again, I have come across extreme cases where the client will be out of pocket until the fourth year, and even that is on the assumption that the claim is accepted in its entirety.
10. Having said that, there are some good specialists out there too. Some of the larger accounting firms have in-house expertise for this work. Some of the niche firms have established long term professional relationships with accountants, where the two work well together for the benefit of the client and where there is a win-win-win for the three parties. These allowances are potentially very valuable and they have been brought into sharper focus by recent changes. If you are not confident that you can handle the issues yourself, then engaging a specialist adviser may be essential. But choose carefully!
Ray
Capital Allowances Claims.
[Glennzy said he used a specialist chartered surveyor who charged £6500 for doing the survey work. "I then got his reports and worked with our external accountants what had been claimed previously and put together a claim for the additional. In the end we got CT tax rebate in 2012 of £800k and and have a substantial addition to the CA Pool going forward.
In total our fees were £20000 for the whole job." Other firms were wanting a "huge" percentage of the tax saving, he said.]
The fees Glenzy ended up with may not have been difficult to achieve by engaging with the right specialist capital allowances claims companies. Those firms quoting large fees are generally working on a fixed percentage basis which does not take account of the likely level of capital allowances to be identified. Reputable capital allowances claims firms will normally be able to estimate the likely level of capital allowances that will be identified and fees will be adjusted to take account of this before the engagement letter is signed.
My personal opinion is that engaging a surveyor who has not had the appropriate tax training can mean items of P&M which could be claimed are missed because of a lack of understanding of the legislation and over a decade of legal precedents. In fact I believe the RICS recently issued a practice note to its members reminding them that unless they are specifically qualified in this area they should not be giving tax advice to clients.
John Plumridge
Very good experiences here
One of the specialist firms recently got £70k (very material to the client) of allowances that the accountant before me (thank Goodness) had missed 5 years ago. I was very impressed with the work they did for the fee charged, and simply attached a PDF of their report to the re-submitted tax return.
All seems to have gone through very well. I've spoken to a couple of their folk at length and have a few other clients who may be able to benefit from this.
I've re-submitted a few returns where integral features etc. have been missed in the previous year and I pick this up in the handover material. But where it's potentially several years before my appointment I think the specialist guys are the way to go and worth their corn.