It has taken HMRC a year since the Structures and Buildings Allowance (SBA) was announced in the November 2018 budget to publish the detailed guidance on its new tax give away for capital expenditure on all non-residential buildings, whether they are built from new, extended, tenant fit out, or refurbished.
The estimated cost to the Treasury, or put it another way, the amount the taxpayer can save in 2019-2020 is £165million, and HMRC will spend £17million to put their systems in order to cope with this change!
Is it worth it?
The tax relief is 2% of the qualifying expenditure leading some clients to question whether this tax allowance is worth the effort of making a claim?
Perhaps the response is do you want to pay less tax or potentially disrupt a future sale by not having the relevant information to hand to transfer to a Buyer? The allowance rate may only be 2% but on a £10m industrial development the allowance is worth about £350,000 in tax savings over ten years, not something to be sniffed at.
Additionally, because of the interaction between the SBA and capital gains on sale, it is now more important than ever to use a specialist with the appropriate skills to value and maximise the plant and machinery allowances thereby reducing potential future gains.
Guidance Note Explanations
The guidance notes have provided some further explanation on the following points:
- An SBA allowances statement must be maintained but does not have to be routinely disclosed to HMRC. However, as demonstrated by the recent Hora Tevfik v HMRC case it is beneficial for the taxpayer to submit the statement to HMRC, otherwise there is a risk of enquiry beyond the normal time limits.
- Where no construction contract exists, maybe because in-house, or an agreement, HMRC clarify that an email exchange would satisfy the evidence required
- How to calculate the SBA figure where a project has both qualifying and non-qualifying use, or is constructed in multiple phases
- Definition of residential us; although the SBA definition of residential is different to that used for plant and machinery allowances. So what evidence is required to substantiate a claim?
What evidence is required to substantiate a claim?
Unless the following is provided the SBA claim is NIL:
- Evidence of construction expenditure incurred
- Relevant documents to support the date of earliest construction contract
- Calculations of their just and reasonable apportionment (where purchase price is the relevant expenditure)
- Date of first use, for the purpose of an SBA claim
Definition of Residential
The definition of residential is defined, but perhaps has confused the definition compared to other allowances, namely plant and machinery.
- Hotels qualify, but aparthotels do not
- Care homes qualify for P&M, but old age, and self-contained without personal care do not
- Furnished holiday letting qualify for P&M but not for SBA.
- Residential common areas qualify for P&M, but not for SBA.
- Structures in residential common areas qualify for P&M, but not for SBA.
Potential issues for the calculation
There are added complications in calculating the allowances, especially on multi-let properties undergoing refurbishment programmes and mixed use developments, but on all projects we envisage potential issues arising from ensuring that the basis of the calculation is correct and excluding from the calculation any of the following:
- Certain architect fees
- Planning fees
- Expenditure which could qualify for land remediation relief
- All expenditure that could qualify for plant and machinery and integral features
- On costs to various packages including professional fees
The new SBA is a welcome relief and a valuable one particularly where properties are held over a number of years. For any queries on the legislation then contact one of the Veritas Directors.