“Look Further – Look Deeper & Find More”
Capital Allowance Optimisation - The case for calling the experts
Good accountants will have an established routine for assessing capital allowances;
capital allowance experts take the search to a whole new level.
Most businesses are aware that they can claim substantial tax relief on purchases
or investments required to run a business, known as capital allowances. This tax
relief applies to plant & machinery, buildings and research and development and
enables a business to deduct a proportion of these costs from their tax bill. A
good accountant or other business advisor will have a standard routine for taking
companies through an assessment of what they can claim, with the aim of collecting
up all applicable capital allowances and maximising the tax benefit to their clients.
However, a good capital allowances expert will look further, winkling out previously
un-thought of items of allowable capital, embedded deeper in the business. Uncovering
this extra layer of allowable items can add tens or hundreds of thousands of pounds
to a business’s total tax savings.
Plant and machinery is not a term defined in law and in practice it covers a wide
range of items, extending far beyond just movable items and fixtures & fittings
such as ‘machines, cars, tools, equipment, computers, software, furniture, etc’
that will appear on routine check lists. It can cover items hidden in the very fabric
of a building - known as, ‘integral fixtures’.
For example:
- A good accountant will diligently count up all the PCs and workstations as allowable
items, as these are essential to running the business; but, a capital allowance
expert will look further and count the floor boxes embedded in the building structure
as well, which provide power sockets, telephone jacks and computer points – all
equally essential to running the business.
- Likewise a good accountant will know how to value the furniture and furnishings
integral to running a hotel business; but a capital allowance expert will know to
include also items integral to the building, but equally essential to running the
business, e.g. items relating to thermal insulation (e.g. radiators) and fire safety
(e.g. smoke alarms, extinguishers etc). Also, ‘Ambience Issues’ can sometimes be
taken into consideration.
- Again, a good accountant will have diligent system for counting up a sport center’s
gym and other equipment as allowable items; but a capital allowance expert will
look further and include e.g. anti-slip or soft impact floor surfaces, integral
to the building but nevertheless essential in this type of business and part of
the safety cost.
- This is just a small example. The list of Capital Allowable items is vast.
A key difference that a capital allowance expert offers is adding value to the work
of a good but non-specialist accountant: The accountant’s review normally begins
and ends with analysing invoices and following the paper trail:
A capital allowance expert will visit the property in person and identify items
that are invisible within the paperwork.
Substantial tax savings
The tax savings from this additional layer of scrutiny of items are significant.
The smallest claim handled by Capital Allowances Online in the past 12 months was
for £28.000. The largest was several million. Most of our cases show unclaimed allowances
of over 80% of the entitlement – even with businesses that have been advised by
professionals on capital allowances. Nearly all of our cases show businesses typically
claim less than 50% of entitlement.
There is no time bar for retrospective claims – years of unclaimed tax relief waiting
to be reeled in today.
There is no time bar for retrospective claims, meaning a claim started today could
take into account years of investment in ‘plant & machinery’, reeling in tax savings
on each and every item that may have been hidden from view at the time past claims
were made. This creates a significant opportunity for a boost to the business’s
financial position in the present day.
Sweet deals – unclaimed capital allowances will be a major contribution to company
resource in today’s market
In difficult markets, taking into account any unclaimed capital allowances on a
building can make a critical difference to the value of any deal on the table.
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From a purchaser’s perspective, knowing that a substantial allowance claim can be
made on transfer alters the ‘cost’ of the purchase substantially and can make an
unaffordable deal both affordable and attractive. From a seller’s perspective, the
unclaimed capital allowance is a benefit that could be offered to a potential purchaser
as a sweetener, to move a deal along in a slow market.
At the point of sale of a building, huge amounts of Capital Allowances change hands
without either party being aware they have given them away or – ‘inherited the money’
Interaction with Capital Gains benefits – tax relief twice over
A common misconception…… Because winkling out allowable assets embedded in the very
fabric of the building in the manner described above means that tax savings are
being made in the ‘land and buildings’ column of a business’s balance sheet, not
just in the ‘fixtures and fittings’ column, many businesses – and many qualified
professional too – mistakenly believe that any benefit gained by claiming capital
allowances in this way will be cancelled out by a proportionate increase in the
chargeable gain on Capital Gains Tax calculation, if and when the property is sold.
This is one of the most common misconceptions about capital allowances and it is
a complete myth.
The Capital Gains Tax legislation clearly states that there is no requirement to
exclude from sums allowable for deductions in Capital Gains Tax calculations, sums
that have already attracted relief as capital allowances (s41(1) Taxation of Chargeable
Gains Act 1992). Arguably, this is the only incidence in business where the same
line of expenditure can attract tax relief twice over!
Case studies
Haytor Hotel, Torquay
The proprietors on purchasing Haytor Hotel appointed Capital Allowances Online to
carry out a Capital Allowance Claim who uncovered capital allowances running to
hundreds of thousands of pounds never claimed by the previous owners. This money
is now available to them to offset future tax liabilities
Amhuinnsuidhe Castle – Pronounced ‘Aven-suey’ - hotel and sporting estate
A treasure chest of some £250,000 capital allowances was locked away in the fabric
of this castle, which Capital Allowances Online uncovered for the happy owner, now
set aside for offsetting against future tax liabilities.