Legislative requirements and market demand are driving the need for buildings to become more sustainable in terms of construction and operationally.  Here we explain how capital allowances can help to offset the cost of refurbishing existing buildings to achieve higher green building standards.

Building design is increasingly looking at innovative ways to deliver greener buildings and the different building design options which provide the most cost effective outcome in hitting the desired rating.

The tax relief provided by claiming capital allowances by the entity that incurs the expenditure is often overlooked.  By factoring in the capital allowances to help ‘pay back’ some of the cost, is increasingly important to assist in the feasibility of these projects.

Capital allowances provide some form of tax relief against most types of building works, here we consider a selection:

Thermal insulation to existing buildings

This can take many different forms from replacing single glazing to double or triple glazed units to over roofing or cladding.  All these measures attract thermal insulation allowances providing it can be shown to improve the building’s u-value.

Electricity consumption

With the cost of utilities going up, building owners and occupiers are looking at cost effective ways to reduce energy consumption and to future proof their buildings. This could be through replacing lighting to LEDs, adding intelligent controls and adding photo voltaic panels.  All these building measures qualify for integral features where they form part of the ‘trades’ electrical system.

Heating & Cooling

The way buildings are heated and cooled are too many to list for this article, but increasingly building owners and occupiers are considering non fossil fuel solutions which for existing properties can be challenging to incorporate.  Building efficiencies into existing systems is often a first consideration.  Adapting more efficient boilers or moving to electric heating, ground source heat pumps and CHP, are all options that can deliver greener accreditation.

Solar shading can be installed to reduce the solar gain to reduce the buildings demand for cooling and can come in the form of a separate fixed overhang, or part of the cladding design.

Each of these measures qualify for some form of capital allowance, typically integral features. Claims can be increased further by including the associated builders works, preliminaries and certain professional fees, which can be apportioned to the specific qualifying plant items.

In the autumn statement it was confirmed that the annual investment allowance will remain at £1m and is available for individuals, partnerships and companies which based on a corporation tax rate of 25% will provide up to £250,000 of tax cash savings, or £450,000 for partnerships and individuals.

To understand more about how capital allowances can help to offset the cost of office refurbishments, please contact one of the directors.

In the recent autumn statement, the government confirmed that there would be no extension to the 130% super deduction, confirming the end date as 31 March 2023.  Here we provide a reminder of what can be claimed and how to ensure this highly beneficial relief is not missed out.

What are they?

Capital allowance super deductions are a temporary first year allowance which provides 130% tax relief against the main plant & machinery pool expenditure.  Available to companies subject to corporation tax including non-resident landlords.  Expenditure must be contracted after 3 March 2021 for expenditure incurred after 1 April 2021 and before 31 March 2023.

In addition, there is a temporary first year allowance, the special rate allowance offering 50% tax relief against the special rate pool expenditure.

What qualifies?

Main plant & machinery expenditure relates to those assets that are more trade specific.  In the context of building expenditure these include IT, security, fire protection, furniture and fittings, sanitaryware, and specialist items such as demountable partitions, and decorative assets.

Whereas the special rate allowance is for assets that have a longer depreciation life including lifts, air conditioning, heating and electrical systems, hot and cold water and thermal insulation.  In addition, to increase the value of claims further all associated costs such as contractor preliminaries and certain professional fees can be apportioned.

Benefit to claim?

The super deduction provides a 130% first year allowance which means not only are you getting tax relief against the full cost of the asset, but you also receive an extra 30% on top.  This equates to a 24.7% tax cash saving, meaning that the net cost of the asset is reduced to 75.3%.

Special rate allowance assets, are usually written down at 6% per annum so by claiming them at 50% in year 1, provides a significant acceleration in obtaining the tax relief.

Issues to overcome

To claim both reliefs the claimant must demonstrate to HMRC that the expenditure has been ‘incurred’.  Under the capital allowances legislation, it is when there is an unconditional obligation to pay.  For a typical building project this will be triggered when the contractor’s valuation is certified to be paid.

Then as a result, it must be shown that the asset belongs to the claimant.  For some assets there may need to be some form of vesting certificate provided to demonstrate the contractual ownership having passed.

As with all capital allowances claims, evidence to support both the timing, as well a as case for eligibility of an item must be available in the event of an enquiry.

For those tax year ends that straddle the end date 31 March 2023, the extra 30% of relief is time apportioned based on when the claimant year end falls.

To understand more about how to benefit from these temporary first year allowances please contact one of the directors.

Veritas Advisory are excited to be a part of the Commercial Property Network, launched yesterday at RIBA HQ, London, collaborating with real estate specialists across the country providing a full spectrum of advisory services from investment, leasing, Capital Allowances tax savings, to ratings, environmental, dispute resolution and planning advice.

For more information about the network go to www.thecpn.co.uk

The member firms, in addition to Veritas Advisory, are Aston Rose, Banks Long & Co, Brackenridge Hanson Tate, Brown & Lee Chartered Surveyors, Burley Browne Chartered Surveyors, Cheffins, Clark Weightman – Chartered Surveyors & Commercial Property Consultants, Curchod & Co LLP, Dedman Gray Property Consultants, Fenn Wright LLP, Flude Property Consultants, Innes England, John Truslove, Lapsley Mcmanus Property Consultants Ltd, McConnell Chartered Surveyors Limited, Naylors Gavin Black, Peill & Company, Portquay Consulting LLP, Powell Lloyd, Primmer Olds B.A.S, SK Real Estate (Liverpool ) Ltd, SMC Brownill Vickers, Vickery Holman, VOSPERS Chartered Surveyors & Valuers, Watson Day Chartered Surveyors, WILBOURN & CO LTD,

In the Autumn Statement the government have confirmed a number of tax relief changes to take effect from April 2023, and included an emphasis on tackling tax avoidance, evasion and wider non-compliance. The changes are summarised as follows:

• Corporation Tax rate increasing from 19% to 25%
• Annual Investment Allowance to be permanently set at £1,000,000
• Higher rate income tax threshold reduced from £150,000 to £125,140
• 100% FYA for electric vehicle charge points extended to 31 March 2025
• Research & Development Allowances additional deduction reduced from 130% to 86%
• New investment zones introduced in Sept 22 to change and ‘refocus’; existing expressions of interest will not be taken forward
• £79m will be invested for HMRC to allocate additional staff to review claims.
  

To encourage investment Chancellor Kwasi Kwarteng today introduced a number of tax cuts whilst simultaneously expanding the Capital Allowances legislation and extending accelerated incentives that were due to expire in March 2023.

• Annual Investment Allowance to be permanently set at £1,000,000
• Corporation Tax to remain at 19%
• 130% super deduction technical provisions to be amended
• Higher rate income tax of 45% abolished
• Introduction of new investment zones:
  • 100% Enhanced Capital Allowances on Plant & Machinery
  • 20% Structures and Buildings Allowance

Reforms included within the recent Capital Allowances consultation, plus detail supporting the new measures introduced today, will follow later in the year.

Ahead of the end of the super-deduction next year the Government is considering reforms of the Capital Allowances legislation to further support business investment.

As set out in the Spring Statement a number of proposals were suggested to expand the legislation and Veritas, along with other businesses, advisors and trade associations were invited to submit a response to the consultation paper, including on the impact of the super-deduction, the effects of capital allowances with investment decisions and what more can be offered to support business investment.

The Spring Statement options were wide ranging and positive, with Veritas offering both alternative suggestions and providing industry insights into the benefits and cons of the Governments initial proposals with the outcome of the review expected to be published later this year in the autumn.

Veritas Director Nolan Masters has been appointed onto the panel for Taxation Magazine to answer Capital Allowances queries raised by readers of the publication. Don’t be shy and send him a line!

As part of Veritas’s increasing overseas client network four of the Veritas team spent a week in Seoul with South Korean investors, new and old, further developing relationships for future inward investment into the UK, both through asset managers and also directly.

The trip proved successful with follow ups arranged locally in the UK and future trips also planned to revisit in Korea.

In a positive move to encourage capital investment Rishi Sunak announced in the 2022 Spring Statement plans to expand the Capital Allowances legislation, subject to a consultation process, to be formally announced in the autumn budget and to take effect from April 2023. 

Amongst the considerations are the following:

• Increase the Annual Investment Allowance permanently to £500,000 from £200,000
• Increase main pool and special rate allowances from 18% and 6% to 20% and 8%
• Introduce a first year allowance for main pool and special rate pool of 40% and 13%
• Introduce an additional first year allowance that equates to over 100% of initial cost
• Introduce potential ability to write off costs of qualifying investment in one go
• Improving the Structures and Buildings Allowances and Freeports allowances

With corporate tax rates set to jump from 19% to 25% in 2023, owner-operators of Build To Rent should now consider claiming capital allowances.  This long-standing form of UK tax relief can often be overlooked or under claimed.

As a member of The UKAA, we were pleased to be invited to contribute to their latest buzz news issue, in which we explain how investors-operators of build to rent can improve investment returns by claiming capital allowances. Click here to read the article