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Capital v Revenue – Understand The Risks v Benefit

As we are fast approaching the self assessment filing deadline for individuals and the amendment window for corporate entities with a year end of March, understanding the importance of what constitutes capital or revenue expenditure, and the risks and benefits associated with it, is extremely important.

24 Jan 2024

Written by:

First Year Allowances for Corporate Members of Partnerships

In a positive move HMRC have updated their capital allowances guidance for partnerships stating that partnerships with underlying corporate partners can claim first year allowances

19 Jan 2024

Written by: Abu Choudhury

Substantial Unclaimed Capital Allowances On Existing Assets

Capital Allowances provide an opportunity to save substantial amounts of money in a lean market yet many property owners and occupiers are already sitting on vast savings without even knowing it.

23 Oct 2023

Written by: David Gibson

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Latest News

Capital v Revenue – Understand The Risks v Benefit

24 Jan 2024

As we are fast approaching the self assessment filing deadline for individuals and the amendment window for corporate entities with a year end of March, understanding the importance of what constitutes capital or revenue expenditure, and the risks and benefits associated with it, is extremely important.

First Year Allowances for Corporate Members of Partnerships

19 Jan 2024

In a positive move HMRC have updated their capital allowances guidance for partnerships stating that partnerships with underlying corporate partners can claim first year allowances

Substantial Unclaimed Capital Allowances On Existing Assets

23 Oct 2023

Capital Allowances provide an opportunity to save substantial amounts of money in a lean market yet many property owners and occupiers are already sitting on vast savings without even knowing it.

The Risk to Lawyers of Not Correctly Addressing Capital Allowances

23 Oct 2023

Solicitors acting for clients on a purchase or disposal of a commercial property must ensure they correctly address capital allowances; failure to do so may give rise to reputational and / or financial risk.

Maximising Capital Allowances and Avoiding Pitfalls Through Timing

23 Oct 2023

The rules surrounding the transition between Super Deduction and Full Expensing can be complex and the importance of fully analysing and understanding any contract for construction or purchase is significant.

Use Capital Allowances to Help Pay for Higher Spec Offices

23 Oct 2023

On a typical £1m CAT B fit out the landlord or occupier, whoever is incurring the expenditure, could recover up to £250k by claiming Capital Allowances.

HMRC Capital Allowances Enquiries Focusing On Certain Sectors

26 Sep 2023

An increasing number of claims being submitted to HMRC are not fully compliant with the legislation, and in some cases are double what they should be, particularly in certain industry sectors.

Unearthing Hidden Treasures – LGT Wealth Article

01 Sep 2023

Veritas Director David Gibson was recently interviewed by Nicholas Duffy of LGT Wealth Management for thoughts on how family offices and property owners can identify Capital Allowances to help leverage other investments. Click here to read in full

Offset ESG Costs With Capital Allowances

09 Aug 2023

The impact of both ESG and MEES on the property sector is resulting in significant capital investments. To incentivise and reduce the net cost of capital investment, tax relief is available by way of capital allowances.

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:

Irrecoverable VAT

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.