You’re probably aware that capital allowances are a type of tax relief that can be claimed on plant and machinery. But did you know that the term ‘Plant and Machinery’ isn’t actually defined in law?
Instead of a legislative definition, ‘Plant and Machinery’ takes its meaning from common law, where ‘plant’ refers to “apparatus used by a business to carry out its operations” and ‘machinery’ means “equipment with working parts.”
This ambiguity can make it tricky to understand what qualifies and what doesn’t, leaving you to wonder what potential tax relief might be untapped in your commercial property.
I’ve put together a handy guide to explain why claims are often undervalued and to highlight what can qualify for a claim so you can make the most of the available tax relief.
What are capital allowances?
When discussing capital allowances, I like to simplify things as best I can. If you have an item or system that is used in trade and serves a functional purpose, you could potentially qualify for tax relief.
Can you ‘move it, move it?’ – What do we mean by movable items?
The easiest to identify are what we call ‘movable’ items. This refers to plant and machinery that can be relocated from one building to another without damaging the property. Examples include office furniture, computers, and furnishings. This means if you haven’t claimed on that office chair – that’s right, you might literally be sitting on a tax saving!
As these are more visible, as well as more likely to have an invoice or paper trail, these aren’t usually the culprit when it comes to unclaimed allowances. Instead, these are the embedded fixtures and fittings of a property, or the ‘immovable’ objects.
Meet the immovable object! – what are integral features and fixtures and fittings?
The term ‘immovable’ refers to items that can’t be easily moved and are often part of the building’s structure. This covers items such as integral features and fixtures and fittings. As they aren’t as visible, and the paperwork to go with them may not be readily available, they can often be overlooked. The result? Valuable tax savings are missed.
Take a typical work environment, you might have heating, water, and electrical systems, and lifts or escalators. Certain aspects relating to structural changes to the building may also be eligible for a claim. It’s a common misconception that these are simply part of the building, but they actually offer significant tax-saving opportunities.
Property pitfalls – What doesn’t qualify for capital allowances
We’ve gone through the exciting bits of what does qualify but it’s important to highlight the items that sound like they fall into the definition but wouldn’t be relevant for a capital allowance claim, which I have listed below:
- Purchasing land
- Décor
- Items classed as buildings or structures
- Personal items
- Leased assets on site which are not owned
- Anything which has already been claimed against, or has received other forms of tax relief
However, I did say that capital allowances can be tricky, so I’ve pointed out where a capital allowance claim could still be considered with the above in-mind
Land: Although land itself isn’t claimable, costs to clean up contaminated land could be included. Alterations to land for the purposes of installing plant and machinery may also qualify.
Décor: Certain assets such as murals on walls may qualify if in a trade such as a hotel or restaurant where they exist for the enjoyment of the general public.
Items classed as buildings or structures (e.g. walls, ceilings, doors, fencing): There are instances where walls (e.g. moveable partitions) and certain parts of these items may be claimable (e.g. ironmongery, thermal insulation).
Think you missed out – there might still be time
You generally have up to 2 years from the end of the accounting period in which the expenditure was incurred to make the most out of a capital allowance claim. I’d recommend you act as soon as possible to maximise your tax relief benefits.
Surveying the action – the importance of getting in an expert
The risk of capital allowances is the assumption that everything has already been claimed, usually because only the visible items and those that have had invoices provided have been put forward for the claim. We go deeper into a claim, conducting a capital allowance survey as part of our process to fully explore a property, leaving no stone unturned or roof space unexplored!
This survey includes:
- A comprehensive list of all the assets (can include both movable and immovable where applicable) – this is the key stage and lets us build a solid claim for you.
- A valuation of each asset, i.e. the costs to buy and install in the relevant location and year of purchase.
- The survey and valuations are then assessed to see which assets qualify for capital allowances and remove any costs that have already had tax relief.
This can only be done by bringing together all available historical records to support the claims.
Only then can we put forward our recommendations and a claim that the client can be 100% confident in and that we have optimised their tax position fully.
Don’t miss out in the future – my top picks for keeping on top of potential claims
To avoid missing out on capital allowances in the future, I would recommend keeping detailed records of purchases, conducting regular asset reviews, and staying updated on tax regulations.
Most importantly, get in touch with an expert who will be able to fully utilise your claim. Remember, there might be qualifying assets that you can’t see, weren’t installed by you, or you haven’t yet claimed on. Don’t let the untapped potential of capital allowances pass you by.
