Maximising the amount of Capital Allowances identified within a project will reap significant savings. However, it is important not to overlook other factors that can inherently improve cash flows and savings. Three simple examples are set out below:
For some reason the issue of VAT is often forgotten about when preparing Capital Allowances claims. For many organisations, or individuals, it is not possible to recover the VAT on building works being incurred; common examples are financial and insurance organisations which have VAT exempt undertakings, and individuals such as GP practitioners who are not VAT registered.
One way of offsetting part of this cost is allocating the proportion of the irrecoverable VAT to the qualifying Capital Allowances; the VAT position should therefore be raised at the outset of a project if there is any doubt on the clients ability to recover VAT.
Accelerating Cash Flow Benefit
There are various ways in which to accelerate the cash flow savings so the benefit is realised in the year of expenditure rather than over a number of years. These include the identification of either Land Remediation Relief, a 150% tax relief available on items such as removing asbestos in buildings, or more commonly through the identification of energy efficient plant and machinery.
It is widely known that mechanical and electrical works typically qualify for Capital Allowances; however it is often assumed that these works all qualify as integral features, which are written down at 8% per annum, ignoring the possibility that actually they could instead deemed to be classified as plant and machinery, written down quicker at 18% per annum, or are even energy efficient products which benefit from 100% first year allowances.
The accelerated cash saving in the year of expenditure could therefore be 12.5 times greater if processes are put in place to identify certain types of products. However, without a specialist Capital Allowances advisor to implement the correct processes and investigate the individual products it is conceivable that these allowances will be missed.
Structuring Contributions and Grants
To maximise the benefit of Capital Allowances where capital contributions are given it is often advisable to structure the agreements to allocate the expenditure to qualifying items as much as possible.
The same in reverse applies where occupiers or clients receive grant funding associated with fitting out or developing their properties. A recent example is a medical centre, owned by the five practising GPs, who undertook a refit of the premises including a small extension.
As part of the works the GPs received a grant from the NHS and a contribution from the neighbouring pharmacy which together covered 90% of the £1m project cost. However, despite this, and because the grant payments were allocated to certain works including non-build costs such as lawyer fees, plus the GPS were not registered for VAT, it was still possible to save the five partners over £200,000 in tax between them.