Capital Allowance Claims Within Commercial Properties
April 2014 sees the most significant change in the rules affecting Capital Allowances since its introduction, in 1946, with accountants and commercial property lawyers most likely to be held to account in situations where the client loses out on potential significant tax savings.
The Capital Allowances legislation allows for qualifying items, ‘fixtures’, within a commercial property to be claimed as a tax relief (over a period of time) where it cannot be relieved as a straight deduction against profits.
HMRC has, however, become increasingly aware of situations where the legislation in place wasn’t being strictly followed by accountants and their clients. With scant documentation maintained to confirm eligibility to this very valuable tax relief covering items of qualifying expenditure within the fabric of commercial property. This has led to instances where claims have been made where eligibility has not been confirmed, and potential duplicate claims have been made.
The consequence of which being the introduction of variations to the legislation covering Capital Allowances added to the Finance Bill 2012, with the most far reaching impact being felt from April 2014, following a 2 year period of transition.
During a commercial property transaction, this change requires the value of any available allowances to be accurately identified and ‘pooled’ within at least the last accounting period for the vendor prior to the transaction taking place. A disposal value must then be agreed and documented as part of the sales transaction via an accurate and detailed election under s198/s199, as set out in s.187A of the Capital Allowances Act 2001. This should be further supported with comprehensive answers to section 19 of the CPSE document.
Where a strict set of guidelines are not correctly followed, eligibility to the relief will be lost, not only for the new owner, but also to any future owners of the property; it is therefore it is essential for prospective vendors solicitors to utilise the skills of a specialist Capital Allowances provider (as documented by the Law Society in their guidance to their profession, issued on 18/3/2014), such as Elect Capital Allowances Ltd.
HMRC have issued detailed instructions to their Inspectors and compliance staff as to how they should treat any claims for expenditure incurred before this date, but a full understanding of their processes and margins for acceptance of a claim should still ensure a secure and swift refund of taxes paid.
Elect Capital Allowances Ltd operates a formula of not only correctly identifying and maximising the value of a claim for items of qualifying equipment, but also in assisting in taking the claim through to final acceptance by HMRC through tried and tested negotiation techniques.
Authors Sarah Rigg and Richard Hier are Directors of Elect Capital Allowances Limited who have 30 years of experience working within HMRC and over 20 years working within the commercial Tax Consultancy world.