Capital allowances can give tax relief on capital expenditure, incurred on the provision of certain assets to the company. Essentially, they allow you to offset qualifying costs against tax liabilities .
But how can capital allowances help you gain the most out of your business?
For the next instalment of our tax planning series, Capital Allowances Director, Chris Roberts explains the benefits of capital allowances and how it can make your money go further.
An introduction to capital allowance
To put it in simple terms, capital allowances allow commercial property owners to deduct either some or all of the value of a qualifying item from profits before paying tax.
They are calculated for different types of expenditure and can be claimed against costs such as renovating business premises, acquiring new or second-hand buildings or structures and plant & machinery. This can range from functional systems such as lighting, heating and health & safety, to mechanical equipment and outdoor appliances, if treated under the right circumstances.
But capital allowance isn’t automatically given. The function of the item or system must fulfil a purpose for the trade, to then have the possibility of being able to qualify for tax relief.
There are many advantages of claiming capital allowances;
• You will gain a tax benefit, which will reduce, and potentially offset tax liabilities.
• It allows you to claim all or a proportion of the cost of capital expenditure against your company’s taxable income.
• It can help to improve cash flow and keep cash within the business, helping you to be more prepared in case you experience any unwanted surprises.
Make my money go further
The amount you save on tax by claiming capital allowances can be reinvested into your business – for example, this can help with potential expansion or growth plans.
You could also be missing out on tax refunds against capital expenditure which could benefit your business IF a property was purchased prior to April 2014, as there is no time restriction for retrospective claims. This means you can start to look at reviewing your property costs and potentially unlock significant tax benefit.
If a property was purchased after April 2014, there could be a 2-year time deadline from completion to claim these allowances. However, the two-year deadline doesn’t always apply, as it’s subject to a number of factors relating to the purchase.
I do encourage all transactions to be reviewed as, quite often, capital allowances can be claimed after two years have passed. You may not be too late to claim on two-year old assets, which means you could be entitled to a large sum of tax reliefs.
You could be sitting on significant hidden tax savings
If you have built, bought or renovated a property, or incurred capital expenditure on plant and machinery that’s use is for the purpose of a trading or rental business, then you are more than likely eligible to claim capital allowances.
There’s a general rule of thumb whereby you must own the asset you are looking to claim tax relief on. In other words, if you have hired or leased the assets, you won’t be able to claim capital allowances, but you may be able to obtain tax relief on the rental costs as a revenue expenditure.
It’s important to note that expenditure incurred from 1 April 2021 – end of March 2023 could qualify for Super Deduction which gives a 30% uplift on the qualifying costs (e.g. 130% capital allowance claim). This, however, is subject to a number of conditions and is only available for companies-unincorporated businesses such as those who are self-employed are not eligible.
Capital Allowance in the hospitality industry – The Parogon Group
The Parogon Group is a well-known name in the hospitality industry, with a portfolio of 9 restaurants across Cheshire, Shropshire and Staffordshire. They have worked with us for over ten years, and we have managed to assist on many capital allowances for the business.
After visiting the properties, we pulled together a report that identified £322,000 of unclaimed capital allowances for two properties, which made up 33% of Parogon’s total expenditure. £650,000 of Structures and Buildings allowance tax relief was also identified. They also benefitted from an initial tax saving of £61,000 and future savings of £118,000.
The expertise of our dedicated Capital Allowance team allowed us to maximise the tax relief on property spends for the group which would have possibly gone unclaimed. It was their expertise that enabled us to tap into these additional tax savings over and above the claims that we would have been able to generate for them. These tax savings can be used by the client to reinvest in the business to help with their continuing growth plans.
