Insights

A look into our best tips and advice from our most experienced team members

Insights

Why consider tax planning?

When constructing, altering or refurbishing a commercial building, a substantial amount of the expenditure incurred will be eligible for capital allowances relief.  As the name suggests, the expenditure must be ‘capital’ in nature to qualify for the tax relief.  This means the asset must be of enduring benefit to the business (which property would be) rather than a running cost or disposable items like stationary or payments for services like water, gas or electrical supplies.  Residential property is excluded, although any plant in the common parts of large residential blocks could still qualify for relief.

Items of expenditure on specific systems or components in the property (as set out in tax legislation) are accumulated and allocated to different tax classes.  These tax classes determine how much relief is given.  The claim must be submitted to HM Revenue & Customs (HMRC) and negotiated.  The benefit comes from using the allowance generated to reduce the tax payable.

The identification of qualifying expenditure requires a thorough understanding of both the legislation and construction data and allowances may be enhanced through tax planning in the early stages of a project.

We would recommend that clients take advice in the early stages of planning a project so that they can consider the tax effect of various options.  Without compromising the design or program for the works it is possible to compare options and make informed choices, with the additional knowledge of which options will give you the best outcome in terms of allowances available.  In addition, you can ensure that the construction documentation produced is broken down in a way that helps the analysis process and makes it easy to support a claim by creating a full audit trail.

Capital Allowances – A guide for Accountants

We have worked with accountants and tax specialists for many years and have a good appreciation of the issues that claims for capital allowances can cause. First and foremost, we are not accountants, so there is no threat that we are competing for client accounts. Secondly, we appreciate that capital allowances are a very specialist area and that most accountants do not claim to have this expertise in-house. Finally, we know that obtaining detailed information from clients can be difficult, particularly if the expenditure is historic or time pressures are great.

We, therefore, have two different approaches to how we can work with accountants to help you provide a more in-depth capital allowances service for your clients.

  • A full service from entitlement checks through to detailed analysis and final negotiation with HMRC, or
  • A review service where we review any claims made by you and see if we can enhance the claim for the client.

Capital Allowances – A guide for Cost Consultants

As a cost consultant, you will be instrumental in the successful outcome of your clients building project and someone that they will rely on for guidance and advice.

On any client project, the costs are always a sensitive issue and clients depend on you to keep them under control and produce a cost-effective end result.  The tax implications of incurring the costs are not always thought about when the project is being planned, and often not properly considered until long after the works are complete; by then the chance to incorporate many tax-saving measures will have been missed.  But even if tax is not considered in the planning stages, your client can still reduce the after-tax cost of their projects by ensuring that capital allowances claims are maximised and submitted as early as possible.

As the person who is involved from the very start of the project, you are ideally placed to bring the matter of capital allowances to the attention of the client.  This will enable you to add yet another value-added service to your client which will result in substantial cost savings for them.

Super Deduction & 50% First Year Allowance (FYA)

What is super deduction?

  • The new super deduction introduced 3rd March 2021 will allow companies to claim 130% super deduction capital allowances on qualifying general pool plant and machinery investments and a 50% FYA for qualifying special rate assets.

When does it come into effect?

  • The super deduction is effective from 1stApril 2021 to 31st March 2023.
  • Contracts signed between 3rd and 31stMarch 2021 can qualify for the super deduction but only if the expenditure starts after 1st April 2021.
  • Any expenditure incurred as the direct result of a contract entered before 3rd March 2021 will automatically have its date set to that of the contract, therefore the super deduction cannot be applied.
  • Anti-avoidance rules are in place to stop companies cancelling one contract and then re-ordering later with the aim of seeking super deduction.

What does it mean?

The super deduction will allow companies to cut their tax bill by up to 25p for every £1 they invest.

As a worked example:

  • Currently, a Cat B fit out project costing £1m would usually attract around £15-20k of tax relief in the first year (with c.£60k over the first 5 years). However, with the introduced changes, the benefit now available from the same type of project jumps to c.£120,000 in year 1 (with £135k over 5 years).
  • Broken down a step further; if a client spends £100,000 for example on new carpets/kitchens/furniture/etc. they will be able to reduce their taxable profits in this year by £130,000 (instead of previously only £18,000)

Who can claim?

  • The super deduction will only apply to companies who pay corporation tax.
  • Partnerships and sole traders will not be eligible.

What assets are qualified for the super deduction?

To qualify for the super deduction or the 50% FYA the expenditures must be on new and unused assets.

The list of qualifying assets is extensive, but below are some popular examples:

  • Audio visual installations
  • Solar panels
  • Computer equipment and servers
  • Fire alarm & security systems
  • Sanitary ware
  • Office chairs and desks
  • Electric vehicle charge points
  • Refrigeration units
  • Compressors
  • Ladders, drills, cranes

Is there a cap on the claim?

There is no cap on the qualifying expenditures, however, any subsequent sale of the plant and machinery where the super deduction is taken could be subject to a balancing charge equivalent to the amount of relief obtained.

Freeports

What are freeports?

Freeports are special economic zones with different rules to make it easier and cheaper to do business. They allow for simpler planning, access to infrastructure funding, simplified customs procedures, National Insurance relief and tax breaks.

Where are the freeports?

The 8 freeport locations are East Midlands Airport, Felixstowe & Harwich, Humber, Liverpool City Region, Plymouth & South Devon, Solent, Thames and Teesside.

When does freeport tax relief come into effect?

The freeport tax relief comes into effect from the date freeport tax sites are designated until 30th September 2026

What are the freeport tax reliefs?

  • Enhanced Structures and Buildings Allowance – An enhanced 10% rate of structures and buildings allowance for constructing or renovating non-residential structures and buildings within freeport tax sites.
  • Enhanced Capital Allowances – An enhanced capital allowance of 100% for company investment in plant and machinery for use in freeport tax sites in Great Britain
  • SDLT– Full relief from stamp duty land tax (SDLT) on the purchase of land or property within freeport tax sites in England where it is purchased and used for a qualifying commercial purpose.
  • Full business rates relief available to all new business and certain existing businesses that have expanded.

Find what is right for you

We offer fully tailored services for a range of projects for all clients whether they are property owners, investors, or occupiers.