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.