Hora Tevfik v HMRC
Another recent case law on Capital Allowances highlighted HMRC’s position on two main points.
1. HMOs (Houses of Multiple Occupation) do not qualify for Capital Allowances
2. Insufficient supporting information for a claim can enable HMRC to raise an enquiry beyond the normal time limits.
1. HMOs do not qualify for Capital Allowances.
HMO’s do not qualify, a long held view of ours since we were involved in the original HMRC briefing 66/01 and 45/10; it didn’t though stop a number of advisors pursuing claims on HMOs and which effectively gave rise to this latest ruling.
To clarify the position, a house which has been converted to bedsits, but has a ‘communal’ area of a kitchen, living room etc. such as an HMO, is still part of a dwelling house and therefore does not attract capital allowances. Blocks of flats however, with common areas such as basements, stairs and lifts do attract Capital Allowances, excepting the new Structural and Buildings allowances; yet another complication for taxpayers!
2. Insufficient Information to support a claim can enable HMRC to raise an enquiry
HMRC’s normal time limit for making an enquiry into a tax return that has been filed on time is one year from the filing deadline.
However, where there is insufficient information to determine the validity of a Capital Allowances claim, as there was in this case, HMRC has the power to make ‘discovery assessments’ to prevent loss of tax; this can be 4 years after the end of the relevant tax year, or where someone has deliberately not provided information, up to 20 years after the end of the relevant tax year.
Consequently, HMRC were able to raise an enquiry into the HMO claim made by Hora Tevfik even though the normal time limits had expired.
A common question we are asked by our clients is should we include your capital allowances claim report within the tax return? Our view has been yes, on this very basis that it is a valuation of tax allowances and that providing the report discloses sufficient detailed information to allow HMRC to make a reasonable judgement as to whether or not they make further investigations.
The case brought up several other interesting points, known already, but which are nevertheless useful to remember when preparing a claim:
1) that the burden of proof is on the taxpayer to establish the expenditure is qualifying
2) evidence of a property survey and specific identification of a plant and machinery can be used to substantiate any claim
3) using a professional advisor who provides a detailed report can provide added certainty to clients beyond the normal time limits for making an enquiry
Veritas Advisory Directors are recognised by HMRC and experienced across all property sectors including thousands of student accommodation and residential blocks with non-dwelling elements, using successful techniques that maximise the claims in accordance with the Capital Allowances legislation.