The accelerated 130% super deduction and new 100% full expensing capital allowances are set to drive an increase in HMRC enquiries into Capital Allowances claims, increasing the importance of preparing fully substantiated claims, supported by case law and legislation.
In March this year HMRC started to issue ‘nudge letters’ to companies who have claimed the 130% super deduction and 50% special rate allowance prompting companies to check their basis of claim for these first year allowances with an initial focus on leasing restrictions and companies with an accounting period straddling 1 April 2021.
Nudge Letters – What are they?
It is a cost effective form of communication by HMRC sent to taxpayers who HMRC believe have a tax issue to disclose. HMRC have recently targeted Research and Development Claims which offer significant accelerated tax reliefs, and it is expected there will be a similar push for Capital Allowances claimants who have and will benefit from the new 100% full expensing allowances, in addition to the super deduction claims.
It is also expected that HMRC will open enquiries into those that do not respond or make a full disclosure.
HMRC are requesting companies to provide evidence of the asset purchase contract, when the asset was brought into use, correspondence or the date when the supplier was first approached, delivery dates, copies of invoices etc.
This emphasises the importance of a robust claim report and the need to disclose this within the relevant tax return; a blanket claim approach will not be adequate.
Veritas Advisory recommend using an experienced specialist capital allowances advisor as this avoids any pitfalls in claiming the first year allowances, ensures the tax savings are maximised, and ultimately is able to withstand an HMRC enquiry being raised into your tax return.