Capital allowances can offer significant benefits and cash tax savings for businesses. Despite this, many commercial property owners and occupiers miss out on these benefits because of poor advice or a lack of understanding. Most capital allowances claims are for plant and machinery - potential claims may apply on property.
We have found that there are many common myths surrounding capital allowances, and we explore some of those key myths in the series below.
'We have no cost breakdown for our expenditure, so we can’t make a capital allowance claim'
Having no cost breakdown doesn’t have to stop you making a capital allowance claim. However, a lack of detailed information can be overcome by using a capital allowance specialist, who can help you build robust claims, normally using industry cost databases and evidence gathered from site visits to identify and quantify the value of allowances available.
'My advisor has already made a capital allowance claim'
Just because you’ve previously made a capital allowance claim, doesn’t mean there aren’t still further opportunities to make claims. Capital allowance claims are normally made for assets, such as computers, trade equipment and furniture. But, to fully benefit, a combination of both surveying and specialist taxation knowledge is needed. Many accountants are unaware of the full extent of what can be claimed and involving a specialist can increase the quantum of the claim.
'We can’t make a capital allowance claim because we’re out of time'
You’re not restricted by time when it comes to making a capital allowance claim. It is possible to go back and make claims from when you first purchased the property. This could, in some cases, go back to the 1980’s. Any capital allowances identified need to be brought forward into the latest ‘open’ tax year, which is normally the one before the current tax year. The only requirement is that the items covered as part of the capital allowance are still in existence inside the building at the end of the year being claimed for.
'We’re loss making so we can’t benefit from making a capital allowance claim'
If your company is loss making, don’t write off capital allowance tax relief – it’s a very flexible form of tax relief. If a company, partnership or individual is loss making, the relief can be carried back (via the loss carry back rules), carried forward or surrendered via group relief.
In some cases, it may be possible to surrender a loss arising from a capital allowances claim to HMRC in return for a payable tax credit – resulting in a beneficial cash-flow boost.
'It’s only a timing benefit that will be clawed back when we sell the property'
One of the most common misconceptions is that making a capital allowance claim will reduce a building’s base cost for capital gains purposes. This is generally not the case – unless the property is sold at a loss. Furthermore, since April 2014, the transfer of allowances when a property is sold often requires agreement between the buyer and seller which can act to protect the seller against any claw back claim.
'The previous owner of the property has claimed all the capital allowances'
Although the rules surrounding capital allowances on second-hand properties are complex, in many cases there may be an opportunity to identify previously unclaimed allowances, such as:
- The seller not being entitled to claim
- The property being owned for over 10 years (additional capital allowances assets were introduced in 2008. If the seller held the asset prior to 2008 then a partial claim may be possible)
- The seller is a property developer/trader holding the building as a current asset
If you think you may be entitled to any of these, then the Entrepreneur Club can help put you in touch with a capital allowance specialist, who, in turn, can help you build robust claims.
The levels and bases of taxation, and reliefs from taxation, can change at any time. The value of any tax relief depends on individual circumstances.
Where the opinions of third parties are offered, these may not necessarily reflect those of St. James’s Place. This article originally appeared on the RSM website.
Links from this article exist for information only and we accept no responsibility or liability for the information contained on any such sites. The existence of a link to another website does not imply or express endorsement of its provider, products or services by us or St. James’s Place.