Capital Allowances Claimson

Commercial Property

John Plumridge BA(Hons) MCIPS

Is this a scheme or loophole?

• Capital allowances date back to 1870’s• Capital Allowances Act 2001• Decades of case history• Interpretation is constantly refined

Accounting Practice

Revenue Expenditure V Capital Expenditure

Make sure he mentions property developers in this bit! If he doesn’t please remind him.

Profit & Loss Account

Sales £ 1,100,000Cost of Sales £ 600,000Gross Profit £ 500,000ExpensesWages £100,000Repairs £ 50,000Marketing £ 50,000Gas £ 25,000Electric £ 25,000Other £ 50,000

£ 300,000 NPBT £ 200,000

Net Profit Before Taxation £200,000

Capital Expenditure on Plant & Machinery £50,000

Main Rates Pool £50,000 (WDA 18%)Annual Investment Allowance £25,000

Capital Allowances Available = £25,000 (AIA)

Main Pool £50,000 - £25,000 = £25,000 x 18% = £4,500

Capital allowances available in the year £29,500

Applying Capital Allowances

Tax Benefit

Net Profit Before Taxation £200,000

Capital allowances available £ 29,500 Pays Tax on £170,500

Tax saving @20% tax would be £4,900 @40% £9,800

What is capital expenditure?

Brings into existence (or improves) an asset with an enduring benefit to the trade.

(British Insulated & Helsby Cables v Atherton)

Plant & Machinery (P&M)• Machinery has the ordinary meaning you

would expect.• Plant– Could include any asset that is used in the

business of the taxpayer that supports the trade and is not trading stock or the premises in which the trade is carried out.

Examples of Plant Electrical Systems Sanitary Ware

COLD WATER SYSTEMS Heating Systems

Ventilation Lifts Escalators Moving

Walkways

Thermal Insulation External Solar Shading

Kitchen Equipment Signage Art Work? Safety Equipment Electronic Barriers

CCTV

Artificial Turf

BIKE RACKS FIRE ALARMS & SPRINKLER SYSTEMS

Beehives FREEZERS AND FRIDGES AerialsFloodlights Movable Partitions

ASSOCIATED COSTS COLD STORES

Sound Equipment

MEZZANINE FLOORS SUPPORTING PLANT

How does this apply to Commercial Property?

• New Build / Refurbishments / Extensions• Second hand freehold purchases:-

No Time limit on making a claimClaim for original purchase and improvements

• LeasingClaims for major refurbishments / extensions

ALL COMMERCIAL PROPERTY THAT IS OWNED WITH THE INTENTION OF MAKING A PROFIT ON WHICH TAX WILL BE PAYABLE. INCLUDES FHLS BUT NOT RESIDENTIAL PROPERTY SUCH AS BUY TO LETS.

Why it’s worth making a claim?

Retail / OfficesPurchased 2008 - £1.25mCapital Allowances - £302.5kTax Benefit @ 40% - £121kImmediate Saving was £27k

Furnished Holiday LetNew Build 2007 - £630kCapital Allowances £254kTax Benefit @ 40% £116kImmediate Saving was £25k

Why do claims not get made?Solicitors:-

- CPSE1 Form - Section 19- S198 Election Agreement

Accountants Misconceptions:-- Chattels claimed but not fixtures / integral features.- Purchasing contract binding on parties- Capital allowances claims effect CGT on sale- Claw-back of benefit at later date

What does the future hold?

• Post April 2012 - Pooled expenditure - S198 Agreement - First-tier Tribunal• Post April 2014 - Pooling requirement - S198 Agreement or first-tier tribunal - Entitlement lost for all.

Which capital allowances claims company?

- At least one or two partners are dual qualified as :-

- No Claim = No Fee.- Initial High Level Review.- They take responsibility for the final report not the

accountant.

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Thank You