 By Jan Post, Managing Director, RIFT Capital Allowances
When considering tax, most business owners could be forgiven for handing the issue over to their accountant and doing their best to forget all about it. However, there is a significant area which most accountants will not consider – to the extent that an estimated 95% of businesses are missing out on potential tax relief which could save them thousands of pounds per year. It’s something that your business (or your clients’ businesses) should be thinking about now.
The issue is an area of tax relief called capital allowances. These are a form of tax relief from HMRC which apply when you buy or improve a commercial property. Businesses are allowed to offset some of that expenditure on plant and machinery for tax purposes, and what most businesses don’t realise is that these rules apply to anything from door handles to fittings designed to create an ambience in certain businesses. The fact that ‘plant and machinery’ is a slightly off-putting and confusing term can mean that businesses don’t realise that plenty of the items in their commercial property fall into this category, and are therefore eligible for a claim.
Capital allowances apply to a wide range of commercial buildings of almost any age, including factories, shops, industrial units, leisure facilities, offices, warehouses, restaurants, hotels and nursing homes. Tax relief can be claimed for small businesses as well as huge developments and anything in between. To qualify, you must be a UK tax payer (as an individual or a company) and either own or lease a commercial property. However, that property must not be held in a pension fund or owned by the government or a charity, or treated as stock. These don't qualify.
A claim could cover refurbishments that happened many years ago, even if you only bought the property recently. As long as the previous owner did not get capital allowances for the work (and with only 5% of companies currently claiming correctly, this is likely), you can claim the tax relief. Buyers and sellers of commercial property also need to agree a price for plant and machinery as part of the purchase process, which is where surveyors can come in.
The one major pitfall that many companies fall into is relying on their accountant to know everything about capital allowances. The truth is that they often don’t. Accountants will typically claim for more obvious features falling under the remit of capital allowances, but for a full claim, business owners need to consult a specialist tax adviser such as ourselves, who will use a capital allowances expert surveyor to uncover eligible fixtures and fittings. Typically, using a specialist will result in reclaimed tax of between 25% and 45% of the commercial property price.
When pursuing a capital allowances claim with a specialist, an expert surveyor conducts a detailed analysis and ascertains the correct value of the qualifying assets within the property. Often they will examine underneath the flooring or right up into the ceiling to see what has been changed over the years. They will draw up a list of all the fittings in every room, then feed it into a computer model with thousands of matrices which can give a price for, say, a door handle that was fitted 15 years ago. They also check past records and make sure these assets haven't been claimed before. Finally a report is written calculating all the tax which is due to be refunded, which is sent to HMRC.
Given all the work involved it is no wonder businesses haven't fully claimed all the capital allowances tax relief that is due. However, it is worth it. While it is a complex area, with frequent law changes, business owners should be aware that they are potentially passing up thousands of pounds in tax relief – which in these tough economic times is more valuable than ever.
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