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Guest Article – Inherent Capital Allowances Explained

September 19, 2019 | Silver Shemmings

In the first of a new series of Guest Articles, Will  Marshall from Veritas Advisory looks at Inherent Capital Allowances

Inherent or Embedded Capital Allowances the significant hidden assets and cash benefits for the UK owners of Commercial Properties

Inherent Capital Allowances are a complicated and complex tax area which few commercial property owners have taken advantage of resulting in a considerable over payment of tax by many companies and individuals within the UK.

The complexities arise from the many stipulations and regulations relating to the very detailed qualifying criteria, which very few accountants have the knowledge, expertise or experience to handle. To make a successful claim the services of a qualified taxation surveyor are required.

EXAMPLES

We recently identified over £7M worth of Capital Allowances for a care home group which provided them with a tax recovery of just over £800,000. Bearing in mind that the group operates on a net margin after tax of 2% to create the equivalent level of profit they would need to generate an extra £40M in income, in 2017 they turned over £37.1M

Recently a small 5 bedroomed boutique hotel and pub recovered £32,000, assuming that beer sells for £4.00 per pint that is the equivalent of increasing beer sales by 8,000 per annum, quite a lot of beer.

For a dentist or doctor who has made an investment in his surgery which has yielded £100,000 of Capital Allowances, typically the cash benefit could be between £17,000 to £45,000 pounds depending upon the prevailing taxation rates.
Recently for a major retail development of £128M, Capital Allowances of £28M were identified resulting in a cash benefit of £5.32M.

INHERENT CAPITAL ALLOWANCES represent a significant tax advantage and cash benefit for claimants and the commercial property sector is very well positioned to take advantage of this very valuable element of UK tax legislation.

VERITAS ADVISORY are specialist experts in this field and provide their clients with professional advice that is tailored to meet individual circumstances.

WHY YOUR ACCOUNTANT MAY NOT HAVE CLAIMED?

UK tax legislation is highly complex and extensive and there are many specialists for the individual areas and CAPITAL ALLOWANCES is no exception. Veritas, who are taxation surveyors, support accountants by supplementing their activities and considerable knowledge with our own specialist expertise and experience, particularly by providing the essential valuation and costings data.

Generally, accountants are very familiar with writing down for vehicles, machinery and the more obvious items of plant and machinery, where they have difficulty is with the inherent CAPITAL ALLOWANCES within the fabric of commercial buildings.

To make a claim the services of a professionally qualified taxation surveyor are required who understands the detail of the qualifying criteria, which will vary by individual building according to use, and has the knowledge and experience to format a claim that will be acceptable to HMRC.

Our surveyors work very closely with our client’s accountants to:

  • Identify and define the qualifying criteria
  • To establish if it is in the clients’ interest to make a claim
  • To agree the timing of any claim to maximise on the cash benefits
  • The importance of this experience and knowledge should not be underestimated

WHO CAN MAKE A CLAIM?

Commercial property owners and leaseholders can make a claim providing they are paying UK tax. Commercial property owners and leaseholders can make a claim if they are a UK Limited Company, a Limited Liability Partnership, a Trading Partnership or a Sole Trader and have incurred expenditure on an asset, providing they are using that asset in their trade or as an investment. Overseas properties qualify providing they are owned by a UK tax paying entity. Non-profit generating organisations such as charities and pension funds do not qualify.

CONCLUSION

We work very closely with our clients and their accountants. In the case of acquisitions and disposal we also work with client’s lawyers because the law changed in 2014 and the value of the allowances have to be defined in the sale and purchase process by the completion of an election 198 for freehold properties and an election 199 for leasehold. Very importantly if a vendor has made a previous claim it is essential that the wording in the contract of sales is such so that HMRC cannot demand a counter recovery.

For more information contact Will Marshall on 07966 522 567 or will.marshall@veritasadvisory.co.uk and visit our website on www.veritasadvisory.co.uk you will notice from the site that we offer a flexible fee structure including no win no fee.

 


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