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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: Matt Bell

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.

In SSE Generation v HMRC the First Tier Tribunal considered the treatment for capital allowance purposes, various parts of a hydroelectric power generation scheme at Glendoe, in Scotland. The total construction cost, including subsequent rectification works was approximately £300 million. Capital allowances were claimed on some £260 million, of which HMRC have accepted some £34 million, leaving £226 million in dispute.

At the heart of the case was the key question of what an item of plant is. Mr Brennan acting on behalf of HMRC took the view that there was no point in looking at whether the disputed items were “plant” as they were disqualified from allowances by virtue of Capital Allowances Act Section 21 (buildings) or Section 22 (structures) and therefore the legislative provisions providing exemptions under List C in Section 23 did not apply.

The appellant argued that they was a “chronological appeal” in looking at the case to establish whether the relevant items were “plant”, before looking at the statutory exclusions, and it was therefore necessary to identify the relevant piece of plant at the first stage.

The court agreed with the appellant, stating that before an item of expenditure is disallowed by Section 22 for structures, assets and works the anterior question is whether the expenditure on its provision would qualify at all under Section 11.

A further key consideration was whether the agglomeration of assets should be considered as one item or as more than one item of plant for capital allowance purposes. In this case the consideration of Section 23 List C item 22, for the alteration of land for the purpose only of installing plant and machinery, is particularly relevant. It was decided by both parties that the scheme should be viewed “on a piecemeal basis by looking at the function of each of the items in dispute”.

The principle items of expenditure considered, and their decision was:
a) Water intakes – function as plant by extracting part of the flow from the stream, rather than a reservoir which stores water [allowable in full]
b) Water conduits – function to carry utilities rather than a means of transport [allowable in full] – noting the cost of the reinforced concrete conduit was not allowable, but the cost of excavation and subsequent re-covering was allowable in full
c) Headrace – seen to perform the function of delivering water at progressively increasing pressure without leakage [allowable in full]
d) Caverns – the creation was not deemed allowable where it was found to be caught by the premises test as being the place in which the trade is carried on. Only to the extent it was expenditure on “the alteration of land for the purpose only of installing plant or machinery” was it deemed allowable [allowable in part]
e) Main access tunnel – as the primary purpose was not to carry utilities but to allow access, it was deemed not to be captured under the legislative exclusion as a structure for “a tunnel” under Section 22 List B item 1 [not allowable]. Contrast this to the turbine outflow tunnel, drainage and watering tunnels which were thought to resemble an aqueduct and therefore the expenditure was allowable.

Values split between each expenditure considered have not been disclosed. Post this case in the 2018 Autumn budget, HMRC felt the need to clarify the treatment of allowances for costs of altering land. The proposed legislative change will reinforce that allowances will only be given for the cost of altering land where it is for the purpose of installing plant and machinery. It is not intended to relieve the cost of altering land to install assets (most buildings and structures) that are ineligible for capital allowances. It is instead looking for allowances to be provided under the new Structures and Buildings Allowance, introduced from 29 October 2018, albeit at a lower rate of relief.