The fitting out of any property space often comes with a large capital cost. The only way that cost can be offset for tax purposes is to claim Capital Allowances and Revenue Deductions. In this article we set out one example where 35% of the total fit out cost was recovered.
Given the nature of fit out projects, typically with minimal structural works, they often give rise to a high proportion of qualifying expenditure. There is sometimes a perception that to identify Capital Allowances within fit out projects it is simply a case of referring to a list of items that typically qualify and extract these from cost information provided by the contractor carrying out the work. Whilst there is legislation that provides guidance on what qualifies there is no explicit list as such.
Consideration needs to be made not only to the cost of the item within a building contract but also to all the additional ancillary costs which are linked to the installation of that qualifying item. Often these ancillary costs can add 25-35% to any claim for Capital Allowances.
These ancillary costs are not restricted to on costs, such as site set up costs and professional fees but also include costs not always clearly defined in construction projects such as alterations to existing structures, forming service risers, or removing / replacing ceilings, walls, floors to allow for the installation of qualifying items.
An example could be the cost of taking down, storing and putting back a floor to allow for the electric and data installation, or on a larger scale, the formation of new lift shafts within an existing building. With fit out projects there is greater opportunity to claim for these works due to the very nature of the build methodology.
These costs are often not apparent within information provided by a contractor and so it is necessary for a specialist Capital Allowances advisor, with surveying expertise, to visit site and extrapolate these works.
Identifying such ancillary costs resulted in a claimant recovering 35% of the fit out expenditure on a standard office fit out project costing £800,000. £625,000 qualified as Capital Allowances, with further costs being treated as revenue deductions which can be offset in the profit and loss account. The claimant was a partnership, with each partner subject to 45% income tax. Consequently, on an outlay of £800,000 the partners between them were able to recover over £280,000 off their tax bill, with the majority being saved immediately in the year of expenditure.