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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.

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.