Frequently Asked Questions

Find the answers to the questions you have about Capital Allowances and R&D

FAQ's
Capital Allowances - General queries

What are capital allowances?

Capital allowances are the only means of providing tax relief for capital expenditure incurred by both UK and overseas taxpayers on commercial property. They act as an incentive to invest by saving money for these businesses. They do this by offsetting tax on profits which would otherwise be due by the number of allowances claimed. Capital allowances, therefore, reduce taxable profits for companies, businesses and individuals.

What is the real benefit?

The benefit is simple – we can help reduce your tax liability and therefore you pay a lot less tax. The ‘hidden’ benefit is the peace of mind in knowing that your claim is being prepared by an expert who will produce a detailed report on an open book basis in a technically robust fashion so that you do not have to worry about this part of your tax computation.

How much will it cost me?

Our fees are based on the level of allowances identified and will always be less than the first year tax benefit. If we can’t or won’t save any tax we will not charge you a fee.

Why do they exist?

They act as an incentive for businesses to keep investing in property and other business assets. Capital allowances provide tax relief for capital expenditure on items of plant and machinery. Depreciation of fixed assets is not-allowable and not deducted from taxable profits, so another tax relief is available on this expenditure. Capital allowances were brought in to give relief against tax and help keep the economy healthy.

How do you claim capital allowances?

Allowances can only be claimed in a tax return. Accountants and finance teams should be aware of capital allowances but are unlikely to have a mix of the surveying, valuation and real estate expertise to be able to maximise a claim. In our experience, over a third of accountants will not consider capital allowances at all. The higher the claim for allowances, the lower the tax a business will pay, so it is key to claim all that you can.

Capital allowances claims are typically quantified and drafted by capital allowances experts and we have in-depth expertise. We will work alongside the client and their accountant to produce the best results possible. We will analyse the expenditure incurred in detail, identify and categorise all the assets that will qualify for capital allowances relief, and produce a report that can be submitted with the tax computations.

Our comprehensive report format covers most queries that HMRC may have relating to the claim, and our service also includes any correspondence and negotiation with HMRC to agree to the claim if it is required.

What should I do now?

If you have a property that you think may qualify for capital allowances and would like to find out more, please contact us and we will be happy to give you a free of charge initial review.

Is there a time limit for making a claim?

No, it’s not too late. Providing you still own the property and use it in the course of your business, and the fixtures are still there, then a valid claim can still be made. You can put the claim in the last open period, so whilst you will not be able to backdate the claim five years, you would typically be able to go back and make a claim for the last two years or possibly more if those prior tax years remain open.

Enquiries have revealed that there is a £1 election in place. Is that all I can claim?

Not necessarily. Check what items of plant and machinery the election relates to as any items not covered by it can still be claimed.

It is not uncommon to find a claim that has only been made on part of a property or just some of the fixtures that still exist. Alternatively, the property may contain certain fixtures on which prior owners were not entitled to claim. For example, changes to the legislation in April 2008 introduced the concept of integral features. This extended the items on which a claim could now made after that date.

If the seller has made a claim does that exclude me from claiming?

For you to be able to claim on those same fixtures you must now (post April 2012) satisfy the “fixed value requirement” by entering a CAA2001 s198 election to agree the transfer value of those fixtures. Failure to agree a value means you claim entitlement will be nil.  Please note this only applies to the items already claimed – you can still claim things they missed.

What if the seller hasn’t made a claim on all the fixtures in the property?

If the seller has not made a claim on all the fixtures in the property then you can claim on any that they missed.  To be sure that they do not put in a claim for any new items you should certainly consider obtaining their agreement to not make a claim.  However, under the new rules you will need to agree the value of the remaining fixtures and get the vendor to pool that value and enter a s198 election with you within 2 years of the transaction.

My Accountant tells me there is no point claiming capital allowances because it will increase my Capital Gains liability when I sell the property.

Incorrect. Claiming capital allowances does not affect the base cost for Capital Gains purposes. See TCGA 1992, section 41(1).

So what items qualify?

There is no definitive definition or list of the exact items which qualify for this relief. It’s still by no means clear what can and can’t be claimed and in different types of property, the same item can be treated differently. This is why it takes a specialist to maximise a claim.

The final claim will be largely dictated by the type of business being run by the property owner and the nature of the physical items included in the project.  Even where costs are broken down on contracts they are not usually in the best format to identify claimable costs; there are often lump sums which include both qualifying and non-qualifying expenditure which need to be apportioned in a manner which is acceptable to HMRC.

There are also the other costs associated with the building that needs to be apportioned as necessary. These include items like preliminary costs, builders’ work and professional fees.

How much can be claimed?

If we set aside the potential ‘grey area’ where items can be debated, typically, more than 50% of building costs will qualify. In some projects, up to 75% of the cost will qualify and on alterations projects, it is not uncommon to find figures in excess of 80% of total expenditure.

How much could my company save?

For example, if the annual profits of a business are £1 million and the business has incurred capital expenditure giving entitlement to capital allowances of £400,000 for the year, the taxable profits will be reduced to £600,000. Even at a low tax rate, this would save the business thousands of pounds in tax.

Furnished Holiday Lettings

Capital allowances for FHLs; what are the qualifying criteria?

Each of the three following conditions must be satisfied if a letting is to be classified as a qualifying FHL.

The availability condition

The accommodation must be made available for commercial letting as holiday accommodation to the public for at least 210 days within a 12 month period*. The period of time that an owner stays at their own FHL is not treated as being available for letting under the availability condition.

The letting condition

During a 12 month period*, the accommodation must be successfully commercially let as holiday accommodation to the public (i.e. not the owner, family or friends) for at least 105 days.

The pattern of occupation condition

If the letting is more than the long-term accommodation threshold (31 days in one letting) then none of these days will count towards qualifying for the letting condition. If the total of all of the long-term accommodation lettings is more than 155 days in the 12 month qualifying period* then the property will not qualify as a FHL for the period.

What are capital allowances worth on my FHL?

There is no set tax relief rate to expect from your FHL as this will change depending on the property specification, but typically between 25% and 35% of the purchase price of an FHL could qualify for capital allowances relief (although this could be significantly more on properties with high specification). You can also claim allowances on much of the expenditure incurred on improving the property after purchasing it.

Example:

If you purchase a FHL for £200,000, between £50,000 and £70,000 could attract tax relief. Based on this, if for example, you are paying UK tax at 40%, your tax benefit would be between £20,000 and £28,000.
This illustration highlights that this is a very valuable form of tax relief if your lettings business is making a profit and your FHL meets the qualifying conditions. This will reduce your tax liability on any profits that you make from your letting business.

Land Remediation Relief

What is Land Remediation Relief?

Land Remediation Relief (LRR) is a relief from corporation tax only. It provides a deduction of 150%, for qualifying expenditure incurred by companies in cleaning up land acquired from a third party in a contaminated state.

Land or buildings are in a contaminated state if there is contamination present as a result of industrial activity.

Qualifying expenditure includes the cost of establishing the level of contamination, removing the contamination or containing it so that the possibility of relevant harm is removed. The relief must be claimed.  If the remediation work is not carried out no relief is available.

The relief also includes bringing derelict land back into productive use. To qualify as being derelict, it must:

  • Be out of productive use, and
  • Be incapable of being brought back into productive use unless buildings or structures on it are removed.

Relief is given for expenditure incurred in removing the following structures left from any previous occupation of the site:

  • Post-tensioned concrete heavyweight construction,
  • Building foundations and machinery bases,
  • Reinforced concrete pilecaps,
  • Reinforced concrete basements
  • Below ground redundant services (gas, water electricity and telecommunications).

Qualifying expenditure includes preliminary costs and professional fees that relate to the works. There is no relief unless the remediation work is carried out.

LLR is available for both capital and revenue expenditure. However, the company must elect, within two years of the end of the accounting period in which the expenditure is incurred, to treat qualifying capital expenditure as a deduction in computing taxable profits.

A company that makes a loss can surrender that part of the loss that is attributable to Land Remediation Relief in return for a cash payment (a tax credit) from the Government. A claim for a Land Remediation Tax Credit must be made in a CT self-assessment or amended self-assessment.

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