Engineer on construction site

Capital allowances

Maximising tax relief by reducing the after-tax cost on your capital expenditure.

Are you claiming all that you can?

In these exceptional times there is an even greater need to reduce costs. Tax relief in form of capital allowances claims for both corporates and sole traders could be made to reduce taxable profits or increase taxable losses. In addition being able to identify the capital allowances available on a building may increase its value in the market.

In our experience claims in respect of easily identifiable assets such as plant & machinery are made but claims on fixtures within a property and the construction of the property are sometimes overlooked. We have undertaken numerous claims ranging from refurbishments, complete fit outs to new constructions. For example in a £3.5 million hotel fit out we identified 99% of expenditure eligible for allowances, and in an office fit out of £1.5 million and 98% eligibility.

Allowances available

Super Deductions - 130% and 50% between April 2021 and March 2023

Super Deductions

These are new temporary first year allowances introduced in the March 2021 Budget and are now available on eligible expenditure incurred between 1 April 2021 and 31 March 2023. The allowances are:

  • For expenditure incurred from 1 January 2019 to 31 March 2023, a 100% AIA can be claimed on the first £1,000,000 incurred on eligible Plant & Machinery and Integral Features. This generous allowance replaces the usual 18% and 8%/6%. The autumn Budget 2021 extended the period the £1,000,000 is available until 31 March 2023. Unless further changes are announced, it will revert to a permanent AIA of £200,000.
  • 50% as opposed to 6% on expenditure incurred on special rate pool items such as integral features.

Super deductions are:

  • Following an amendment to the 2021 Finance Act are now available to property lessors in respect of eligible assets in leased buildings.
  • Available to companies subject to corporation tax and not individuals, partnerships or LLPs.
  • Not available on expenditure eligible for Structural Building Allowances.
  • Are available on expenditure where the contract for eligible expenditure was entered into after 3 March 2021.
Enhanced Capital Allowances - 100% before April 2020
ECA expenditure on energy efficient plant and is either listed on the Energy Technology List or the supplier or manufacturer self certifies. ECA are no longer available on expenditure after April 2020.
Annual Investment Allowances - 100% 
  • For expenditure incurred from 1 January 2019 to 31 December 2021 a 100%  AIA can be claimed on the first £1,000,000 incurred on eligible Plant & Machinery and Integral Features. This generous allowance replaces the usual 18% & 8%/6% but the £1,000,000 is only available until 31 December 2021 when it will revert back to the pre January 2019 amount of £200,000.
  • Unfortunately AIA cannot be claimed in the period in which a business ceasing trading and cannot be claim on expenditure eligible for Structural Building Allowances.
Plant & Machinery - 18% per year on a reducing balance basis

Examples include furniture, equipment, data cabling, carpeting.

Land Remediation Relief - 150% 

LRR is only available on certain costs on the remediation of contaminated land including asbestos and Japanese knotweed removal. Irrespective of whether the cost is capitalised or expensed relief if 150% of the original eligible costs incurred can be claimed. LRR is only available to companies subject to corporation tax.

Integral Features - 8% before April 2019 and then 6% 

Electrical, lighting, hot & cold water & ventilation systems, lifts, escalators.

Structural Building Allowances - 2% to April 2020 and then 3% 

SBA are available on the costs of constructing new, or renovating old, non-residential properties which do not otherwise qualify for capital allowances. As SBA cannot be claimed on expenditure eligible for other capital allowances to make a valid SBA claim we would suggest that a detailed capital allowance review is undertaken to identify these other assets.

Eligible costs must relate to contracts for the physical construction work entered into on or after 29 October 2018. The relief applies from when the buildings is first brought into use. The annual allowance is 2% before April 2020 and then 3% on a straight line basis.

If the property is sold there is no claw back of these allowances however any allowances claimed would be deducted from the base cost for capital gains purposes. Due to this it is only really worth claiming if there is no intention to sell the property in the near future.

When is expenditure incurred 

Due to the above Super Deductions and reduction in the AIA in January 2022 you may wish to consider accelerating asset acquisitions. However please be aware that for tax purposes the date expenditure is deemed to be incurred is when the obligation to pay becomes unconditional. Where unconditional means legal obligation to pay or date asset delivered.

If the obligation to pay is unconditional before your year-end allowances can still be claimed in that period provided payment is made within four months of the year-end.

Assets under construction 

There is a common misconception that allowances can only be claimed in the period in which they are put into use.

With the exception of Structural Building Allowances, provided there is an intention to use the asset in your business then allowances can be claimed in which the expenditure is incurred.

Sale of property

If you are considering downsizing and selling a property you should be aware that if a potential Purchaser wants to claim future allowances on the eligible fixtures within the property, a joint election, known as a CAA 2001 s.198 must be completed. This election apportions the purchase consideration between eligible and ineligible assets and the agreed split is deducted from the sellers tax pools, therefore reducing future allowances.

Prior to agreeing to this election you should consider:

  • do you as the Seller want to carry on claiming capital allowances, if so you should agree a low apportionment to eligible assets
  • if not larger amounts could be deducted from your tax pools reducing your future allowances. To compensate for this and the future capital allowance benefits that the Purchaser is obtaining, the purchaser may be willing to adjust the purchase price
  • to complete this election the Seller must have identified eligible expenditure including SBA. Have all these assets been identified?

Loss making companies

It is could still be worth identifying eligible expenditure even if your company is loss making for the following reasons:

  • by election to HMRC eligible expenditure on Energy Efficient Plant (ECA) and Land Remediation Relief (LRR) could be surrendered in exchange for payable tax credit
  • the payable credit could be up to 19% of the eligible ECA expenditure and 24% of the 150% for LLR
  • increased current year losses could be group relieved or carried back to the previous period offsetting that periods tax liability.

Historic claims 

You may have acquired a property from a Seller who themselves acquired or incurred expenditure on integral features before April 2008. If this is the case you would be the first to incur consideration on these integral features and entitled to claim the allowances. Such a claim would not require the s.198 election mentioned above but would require the assets to be identified and valued.

Such a valuation should be undertaken by a specialist surveyor and we work with such specialist capital allowances surveyors.

fingers on keyboard

Is it too late to claim?

Provided you still own the asset it should not be too late to claim allowances. We could undertake a capital allowance review and once eligible expenditure is identified you could either:

  • make a claim in the current period
  • amend and resubmit your prior year return subject to the amendment window. 24 months from period end for Companies and 22 months for sole traders.

Please note that the 100% AIA is only available in the period in which the expenditure is incurred, and is not available for historic claims.

Can we help?

Our specialist capital allowances team would be happy to discuss what capital allowances services we can provide or any queries you may have.

Contact us

Caroline Fleet
Caroline Fleet
Head of Real Estate