Significant investment in capital assets for your business can put a strain on your cash-flow, so it’s wise to ensure that you maximise your tax relief on the expenditure.
Most businesses are aware that tax relief is available on some capital expenditure through capital allowances but this can be a complex area. The good news is that there is potential for significant tax savings if allowances can be maximised. It is worthwhile obtaining professional advice for large capital expenditure projects. In particular if you are building or refurbishing business premises then a detailed review will certainly be of benefit.
Structures and Buildings Allowance
A new allowance for the costs of physically constructing a new building or structural work during the renovation of an existing building was introduced from 29 October 2018. This provides relief at a rate of 3% per annum (2% prior to April 2020), but does not apply to the cost of land or for any expenditure relating to dwellings.
Work on buildings can often include significant expenditure on fixtures known as integral features, which include electrical, heating, air-conditioning and water systems, which can qualify for relief.
Plant and machinery
A new build or refurbishment may also involve the installation of new plant and machinery such as computer systems, data cabling, security and fire safety systems which can qualify for a higher rate of annual allowance than integral features.
Energy and water saving plant
Certain energy and water saving items qualify for a 100% allowance. Cooperation from the contractors in obtaining details of specific assets is important when identifying such items. However, since 1 April 2020, these allowances are no longer available.
Commercial property purchases
When a property is bought or sold, in order for the purchaser to secure capital allowances, both parties must make a formal election agreeing what proportion of the sale price they wish to attribute to assets qualifying for allowances. In general the seller will prefer a lower figure, whereas the purchaser will want a higher value. As both parties’ tax position will be affected by the election, this should be factored into any negotiations. As well as making the election, the vendor must have pooled the qualifying expenditure in order for the allowances to be available to the purchaser. Failure to act may mean that allowances are lost going forwards.
Land Remediation Relief
Businesses decontaminating land can take a deduction for the related expenditure in full, plus an additional deduction of 50%. If this puts a company in a loss-making position then it is possible to surrender that loss for a cash payment, at a rate of 16%.
Finally, it’s always worth remembering that all genuine like-for-like repairs of premises will be 100% deductible as a revenue expense. A detailed analysis of a building project may highlight items for which immediate tax relief can be obtained.
PEM’s approach is to get involved in a project as early as possible, whether during a property purchase or at the start of a new build or refurbishment project, to help ensure you secure the tax relief you are entitled to.