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.
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 2022 Autumn Statement confirmed they will cease for expenditure only up to 31 March 2023.
The allowances are:
Super deductions are:
It is essential that all expenditure incurred prior to 31 March 2023 is assess to identify Super deduction qualifying assets prior to the cessation of the temporary first year allowance.
A welcomed development of historic first year allowances and confirmed as a permanent provision in the Mini-budget 2022, with an Annual Investment Allowance (AIA) value of £1 million per annum.
Available to businesses and sole traders with restrictions on mixed partnerships and single control entities. The £1 million per annum allowance enables.
While super deductions are available it is recommended to utilise those first year allowances in the first instance and review remaining qualifying expenditure within AIA allowance. The balance will be subject to writing down allowances.
Where required AIA may be fully utilised to the lesser of £1 million or qualifying expenditure in the year, or part AIA and part utilisation of writing down allowances or just writing down allowances.
Additional rules around AIA include:
For capital expenditure incurred in a business on assets that qualify for capital allowances, the asset must be owned by the company or individual and used within their business or trade. Qualifying assets will fall into two capital allowance pools depending on the asset type: ‘Main Pool Plant & Machinery’ or ‘Special Rate Pool Integral Features’. Assets installed within dwellings are excluded.
Capital allowances are not automatically applied and must be analysed and assets clearly identified and categorise by asset group and applicable pool and claimed within a tax return. As long as an asset is owned and utilised in the trade are no time limits to claim and pool, allowing historic claims.
Land Remediation Relief (LRR) is only available on certain costs on the remediation of contaminated land including asbestos and Japanese knotweed removal.
LRR is not available to companies who were the original contaminator of the land or building.
Irrespective of whether the cost is capitalised or expensed, relief of 150% of the original eligible costs incurred can be claimed. Analysis of qualifying activity and associated costs is required to complete a required election.
LRR is only available to companies subject to corporation tax.
For capital expenditure incurred in a business on assets that qualify for capital allowances. The asset must be owned by the company or individual and used within their business or trade. Qualifying assets will fall into two capital allowance pools depending on the asset type: ‘Main Pool Plant & Machinery’ or ‘Special Rate Pool Integral Features’ (assets of a long life nature). Assets installed within dwellings are excluded.
Special Rate Pool Integral Feature Assets (Introduced from April 2008) – fixed or appended to land or property and will include assets such as heating and air conditioning systems, electrical and lighting installations, hot and cold water systems, lifts and escalators. Identified and qualifying Special rate Pool Integral Features will be written down at 6% per annum against taxable profits.
Utilisation of First Year Allowances or Annual Investment Allowance will require identification and categorisation by asset group and applicable pool.
Fixtures on sale or disposal – consideration must be made on disposal of chattels you are required to recognise a disposal value on sale of the asset. For sale of property interest including fixtures within property you are also required to recognise a disposal value on sale. The sale of fixtures you are able to agree an elected value with a purchaser at a value. The election value can be a figure ranging between original cost down to tax written down value or to £1 per pool. Advice on proposed disposal of property and fixtures is essential prior to marketing the property for sale.
Special rules cover the expenditure incurred on thermal insulation installed into an existing non-dwelling property with special rate pool writing down allowances available. However, on disposal of the property the disposal required to be brought into account is nil.
For expenditure incurred on qualifying Special Rate Pool Integral feature assets before April 2019 incur an 8% writing down allowance – 6% after April 2019.
Construction and refurbishment of commercial property will comprise qualifying and non-qualifying assets together with expenditure on previous non-qualifying structure and buildings.
Structures and Buildings Allowances (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 SBA expenditure 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, and may be different dates for phased completion / dates of first use.
The annual allowance is 2% before April 2020 and then 3% on a straight line basis. There is a requirement for the production SBA Statement for each SBA claim applicable to each date of first use.
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. Consideration of this implication must be considered if future proposed sale may occur in the near future.
Due to the cessation of the temporary Super Deductions for expenditure beyond 1 April 2023 but the late 2022 announcement of permanent £1 million per annum AIA, 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.
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 Structures and Buildings Allowance, provided there is an intention to use the asset in your business, then allowances can be claimed in which the expenditure is incurred.
Similarly, if construction of an asset spans accounting periods, interim analysis can be undertaken to maximise first year allowances and AIA.
If you are considering a property acquisition, the availability and quantum of capital allowances will depend on the tax history and dates of previous ownership and their tax treatment.
Our capital allowance team can undertake the required due diligence to establish the position, recommend a suitable approach and required contract provisions to place the purchaser in the best position. Services may include desktop capital allowance quantum estimates, CAA2001 s.198 agreement through to post completion analysis of the unrestricted capital allowances on an apportionment of the acquisition value.
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:
It is could still be worth identifying eligible expenditure even if your company is loss making for the following reasons:
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.
You may have not analysed and claimed historic capital expenditure on construction or refurbishment projects. As long as the asset is still owned and used in their trade in the period of claim and pooling identified allowances, a mixture of relevant capital allowances relating to date of expenditure and current capital allowances will apply.
Such valuations should be undertaken by specialist surveyors and our capital allowance team can undertake this service.
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:
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.
Our specialist capital allowances team would be happy to discuss what capital allowances services we can provide or any queries you may have.