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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.

The ability for annual capex reviews to attract Capital Allowances is often hidden and difficult to spot the benefit. Here we provide some areas of expenditure to focus on for that tax year end rush.

Time, lack of information, not seeing the benefit can all lead to missed Capital Allowance claim opportunities. To not address is often down to the question posed of,” what is the benefit to claiming?“. For expenditure to qualify for Capital Allowances the expenditure must firstly be capital and not revenue in nature. Items of expenditure which are repairs or operational expense should be posted to the P&L to obtain a full deduction. The remaining capital expenditure will not receive any form of tax relief unless it qualifies for Capital Allowances.

Typically, structural items of expenditure do not qualify for Capital Allowances such as walls, structural floors and roofs but the assets used for that building to function can qualify. One factor which will dictate the level of benefit is the type of expenditure incurred. If you were to take a typical office fit out of say £100,000, you would expect on average £65,000 to qualify for some form of Capital Allowance.

In cash benefit terms, for a high net worth individual paying 45% tax that would equate to £30,000 cash benefit; applying multiples of that £100,000 would give you an indication of benefit for those larger or smaller projects.

The difficulty is that expenditure appears as a lump sum payment on a fixed asset ledger, making it hard for the untrained eye to determine at face value and often requires more detailed analysis. Most accountants do not have the cost knowledge to maximise claims for construction projects. A good strategy can often be to firstly abstract any obvious directly qualifying expenditure such as IT equipment and to then collate all known “capital projects” into one single sub ledger to gauge the value of benefit at stake.

To then understand the nature of expenditure in terms of does it relate to building works, if so, is it a standalone building or extension, which could attract less allowances than for say either a fit out or refurbishment project.

What is the buildings use, it’s function and purpose? Who is incurring the money, occupier or owner, and are there potentially any works which could attract the 100% first year allowance. Also where fitting out works are shared between landlord and tenant a closer review is often warranted.

Typically, for any capital expenditure incurred over £50,000 in value, it is worthwhile reviewing as it equates to thousands of pounds of potential tax relief which would otherwise be missed out on.

Veritas Advisory offers its clients an annual capex service, which provides the client and their advisors with a free initial assessment to determine the availability of Capital Allowances and to then prepare claims in time for tax year end submissions.