We have chosen to support four charitable causes reflecting activities that are close to us and to people we know and would like to raise awareness of. Please do click on each cause to find out more:

World Land Trust

Protect and sustainably manage natural ecosystems of the world, conserve biodiversity with an emphasis on threatened habitats and species.

Jonathan Wallach – Raising Funds for An Incubator at Chelsea & Westminster Hospital

Jonathan Wallach of Everton Phillips is running the Marathon De Sables, an exhausting 6 marathons in 7 days across the Moroccan desert, to raise £30k for a new incubator at Chelsea & Westminster Hospital.

Candy Cane Rescue

A dog rescue charity of which Veritas Director David Gibson is a Trustee, which rescues and cares for greyhounds and other breeds from the Chinese meat trade and underground racing tracks where they are kept and killed in barbaric conditions.

The Worshipful Company of Joiners and Ceilers 

A Livery company that sponsor learning of trades and skills at schools and provides bursaries to assist apprentices

The increasing complexity of the Capital Allowances legislation, differing allowances available specific to building uses or certain taxpayers, the introduction of Structure and Buildings Allowances, the timing restrictions on allowances qualifying for 130%, 100% or 50% and the various rules on disposal have created layers of difficulty in calculating and maximising capital allowances tax relief.

The ‘complexity’ issue results in tax incentives being both under and overclaimed, incorrectly categorised or not being claimed at all!

One way to part overcome this is the use of artificial intelligence. In addition to preparing detailed claim reports for clients, Veritas Advisory, in partnership with Brunel University and Innovate UK, are applying technology to solve some of the issues, the main one being how to use data efficiently and correctly.

Put simply, capital allowances is a process of coding expenditure to the correct category, interpreting the relevant legislation at date of expenditure, applying the prevailing rate of allowance, calculating the “pool” of allowances entering the figure into the tax return to reduce taxable profits resulting in paying less tax.

However, rarely do construction projects and ledgers provide data in a tax friendly format or in sufficient detail to maximise a claim and it is not possible to identify qualifying expenditure ancillary to the installation of plant and machinery merely by reviewing contract documents. Unless a Capital Allowances advisor is appointed to analyse the data in detail significant tax relief will remain unidentified and unclaimed.

As part of our team, we have data scientists to develop a software application using the latest technology to help both the SMEs and their advisors to create a more accurate, and efficient claim process for tax reliefs.  Adaptation to change will be part of the process and the accuracy of the outputs will increase over time by using blockchain technology.  Together with industry advances in the data, future incentives will be better applied so they are directed to the specific investment.

In the coming months we will be looking for partners to assist us in testing and piloting the process; please contact Kwang-Sung Chun to register your interest on [email protected].

JRO Griffiths Limited v The Commissioners for Her Majesty’s Revenue and Customs [2021] UKFTT 257 (TC) resulted in the taxpayer winning their appeal in whether or not a warehouse used to store potatoes for a crisp manufacturer is plant.  The taxpayer won on 2 counts, as a silo and as a cold store.

There are similarities to a previous case, May & Amor v RCC [2019] UKFTT 32 (TC), where the taxpayer won the case for a grain store acting as a silo.  This demonstrates that HMRC is prepared to contest a claim for plant for a similar asset.  With the introduction of the “super allowance” at 130%, we would expect more taxpayers to consider claiming assets described as buildings and structures to be claimed as plant.   Careful consideration of the facts, interpretating case law with fully backup arguments will be necessary with a greater potential for disputes with HMRC.  In this case the value in dispute was £319,483, modest when compared to other cases such as SSE Generation v HMRC for £260million.

The case involved the taxpayers specialised activity of growing crisping potatoes, and being able to supply a consistent quality throughout the year.  This involves storing the potatoes for long periods of time in a controlled environment, both for temperature and moisture and drying.  The design and construction of the store, along with the computerised controls, are very different to a “warehouse”, the floor, walls, plenum plant room, and the size all are key to the function of storing potatoes.  The store was 6 times more expensive than a standard building.

The Capital Allowances legislation defines a building and a structure in CAA2001 S21 and S22.  However, under CAA2001 s23, “a silo and a cold store” are unaffected by S21 and S22.  The case required applying the function, business, and premises tests to determine the outcome based on case law.  Further arguments were made by HMRC on the interpretation of “storage”, a “silo” and a “cold Store”, all of which were unsuccessful.

Veritas Advisory Director Nolan Masters, together with Alex Barnes a Partner at BDB Pitmans LLP, have published an article in Estates Gazette on how capital allowances claims can mitigate the increasing cost of tax on property investment.

Click here to read the article

A Capital Allowances case Inmarsat Global Limited and The Commissioners for Her Majesty’s Revenue and Customs UT/2019/0167 V), has been refused by the Upper Tier Tribunal.

The case involved claiming the launch costs for 6 satellites in the 1990’s.  The original entity that owned and built the satellites was exempt from tax, so when Inmarsat incurred the costs of launching, not the cost of the satellites, they realised after the event that they would miss out of the very valuable tax relief.

The costs may have been allowable as ancillary to the trade, however at the time of launches, they did not own nor had built the satellites.  There was a finance lease in place for the ownership of the satellites, who claimed capital allowances on their construction.

Inmarsat’s basis for claim was that there was succession to the trade when they took on the leases after the launch costs had been incurred.  However, the FTT argued that S78 of CAA 1990 did not apply because the satellites never belonged to the Inmarsat at the time of the launch costs were incurred and had not incurred the cost on the satellites.

This case highlights that capital allowances is a complex area, and advice should always be considered before the expenditure takes place, to ensure that a claim can be successful.

In the June edition of Taxation Magazine Veritas Advisory Director Nolan Masters set out how the new super deduction and special rate allowances will affect property owners, occupiers and investors. Click below to read the article

Taxation Magazine Article – Super Deduction

A case has been determined at the Upper Tax Tribunal (UTT).  Does a cavity formed to store gas satisfy the requirements to be allowed as plant, or it is merely the premises in which the trade takes place?  This is not a straight forward question, and within the ruling lists several of the previous case laws, and the reasoning behind allowing and disallowing plant.

The case, Cheshire Cavity Storage 1 Limited and (2) EDF Energy (Gas Storage Hole House) Limited v The Commissioners for HM Revenue and Customs, the UTT denies and upholds the First Tier Tribunal (FTT) in September 2019, that the expenditure to form the cavity is not qualifying as it acts as premises.

The case is about the taxpayer creating a cavity that can store gas, for the purpose of holding and then selling when the gas prices are higher.  The claimant created the cavities by injecting water into naturally occurring salt rock beneath the ground which, when the salt rock dissolves create a hole filled with saltwater.  Gas is pumped into the hole, the saltwater displaced, and the rocks surrounds the gas keeping it from escaping.

The case considered several cases, Yarmouth v France, a horse used for the trade, Jarrold v John Good, demountable partitions, IRC v Barclay, Curle & Co Ltd, a dry dock, Cooke v Beach Station Caravans, a swimming pool. Schofield v R & H Hall Ltd, a grain silo, Benson v Yard Arm Club Ltd, if a barge is plant when used as a restaurant, Wimpey v Warland, amongst others.

Plant is not defined, but allowed by applying the tests, which must be satisfied.  There have been several capital allowances cases recently; could this be that HMRC are challenging more claims, or that taxpayers are pushing to claim more items, or that new technology will necessitate that we move into the unknown as to whether an item will qualify or not until tested.

The key points:

• Applies to expenditure from 1 April 2021 to 31 March 2023
• For contracts entered into after 3 March 2021
• On new expenditure or unused purchases
• 130% First Year Allowance on Plant & Machinery – Provides 24.7% cash saving
• 50% First Year allowance available on Integral Features
• No cap on claim values

Who can claim:

• Only corporate taxpayers can claim including offshore
• Landlords, owner occupiers and tenants can claim on their expenditure
• Mixed Partnerships, proportionate to the holding owned by the corporate entity

How to claim:

• Requires individual qualifying assets to be identified and valued
• Need a detailed valuation exercise on construction projects
• Area apportionments give rise to under claiming
• Must claim in the year of expenditure
• Have up to 2 years post 31 March 2023 to submit a claim

The fanfare surrounding the announced ‘super-deductions’ was somewhat soured for property investors, in reading of a restriction on ‘leased’ plant and machinery.  Here we set out why for some investors, there is still a way to benefit from these generous temporary tax reliefs.

Investing in property – who benefits

Within the draft legislation, HMRC included the restriction under general exclusions for any plant or machinery which is leased.  Under IRFS16:9 a lease is defined as a contract or part of a contract, that ‘conveys the right to control the use an identified asset for a period of time in exchange for consideration.’  This has led industry commentators scrabbling to see what this actually means for investors in property.  To date, only adhoc guidance has been provided by HMRC, which has provided some clarity, but there are still gaps and the hope is further detailed guidance will be provided, although with the rules applying to expenditure from 1 April 2021, it is far from ideal.

Here we set out how this draft legislation applies to different investors in property.

The owner occupier & tenant fit out

The general principle of claiming these temporary first year allowances (FYAs), as with standard capital allowances, is that entitlement arises as a result of incurring capital expenditure, owning a relevant interest in land and those qualifying fixtures are then used for a qualifying business activity.

Single purchased equipment is straight forward to identify and capture; the challenge will be for any building works which consists of expenditure on fixtures that qualify for different rates of capital allowances.  For example, an electrical lumpsum cost can contain both fire alarm expenditure, which qualifies for the main pool super-deduction (SD) and general lighting which would qualify for the special rate (SR) allowance.  Furthermore, builders work in connection, such as ceiling works, could then be apportioned across both pools.

The exception is where a landlord is to provide a capital contribution towards the tenants fit out works, the tenant will then need to net off the contribution in calculating their available claim.  Under the capital allowance legislation, it is the landlord who is deemed to have incurred the contribution expenditure and who has the potential to claim the temporary FYAs.  Landlord and tenants may need to consider as part of the lease negotiations, who is best placed to incur the expenditure within the leased demise.

The operator

This is where it starts to get more complicated.  It will firstly depend on how the expenditure is to be structured, which party is to incur the expenditure and the contractual arrangements that sit alongside.

For example, a hotel development which is undertaken under an opco propco structure, will be restricted on claiming the SDs and SR allowance, to the extent the ‘control’ of those fixtures have been passed to the opco.  The question of ‘control’ is key, which under IRFS16 defines, as the use of an identified asset where a customer has the right to obtain substantially all of the economic benefits from its use of the asset, through the period.

Management contracts would seem to offer a greater opportunity for the ‘control’ of assets to be retained by the landlord over a lease, but each contract would need to be considered.  Where there is no underlying leasing of the qualifying fixture and the control is solely retained by the operator, then claiming the SDs and SR allowance would still be possible.

The property investor

Under the traditional model, a property investor typically looks to grant the use of space to a tenant in return for a rent.  The ‘leased’ plant and machinery restriction is most certainly in play and needs to be considered on a case by case basis.

The critical question to ask is to establish the level of ‘control’ that exists for each fixture.  For a multi-let office for example, those fixtures installed within the contracted leased office space will be excluded from claiming SDs and SR allowances, but the landlord will still be able to claim the standard allowances including the annual investment allowance.  For those fixtures which are within the control of the landlord, whereby the tenant is merely given ‘rights’ of use under the contract, then the landlord is not regarded as ‘leasing’.  This will apply to those landlord fixtures within the common areas, such as plant room, corridors and lift lobbies which would still qualify for the SDs and SR allowances, but will however, be subject to understanding each contractual arrangement.

For build to rent and student accommodation, plant and machinery within the flat demise was already restricted under the capital allowances legislation, by the residential dwelling restriction under section 35 of the CAA 2001.  Investors in this sector, as with standard capital allowances, can claim the SD and SR allowance on those assets that are deemed within the landlord common area demise.

Single let properties, however, will appear excluded even where the landlord has joint control over the whole building.  It is worth noting that these temporary FYAs do not apply to second-hand acquisitions, unless the property is acquired unused from a developer.

Conclusion

Whilst the SDs and SR allowances can be criticised for not going far enough, the underlying objective of this temporary tax relief give away is to encourage investment.  Providing both businesses and property investors with the opportunity to claim significant tax relief in bringing forward certain capital investment over the next two years.

There was always going to be a need for the government to rebalance the books however, and this will come about by the increase in corporation tax, rising from 19% to 25% from 1 April 2023.  So now is the time to early tax plan for any property expenditure over the next two years, to ensure where possible, this accelerated temporary tax relief is obtained to help mitigate the increasing tax costs to come.

In an unexpected offer of generosity, as part of the Chancellor’s spring budget, temporary ‘super’ capital allowances were announced with a view to kick start the post covid recovery.  Here we set out the requirements for making a claim and the benefit on offer.

What has changed

The introduction of two temporary first year allowances (FYAs) available on new capital expenditure incurred from the 1 April 2021 to 31 March 2023 for contracts entered into after 3 March 2021, namely:

Benefit of claiming

In cash terms, claiming the SD provides a 24.7% cash saving, so, for every £100 spent, the net tax cost is £75.30.  If the tax relief is rolled forwards and claimed when the corporation tax rate is increased to 25%, that cost saving increases to 32.5% or a net tax cost of £67.50.

Benefit example: Based on year 1 benefit for a company spending £10m on qualifying main plant and machinery assets:

Restrictions & disposals

Applies to corporate tax-payers only, so individuals and partnerships miss out, but can still claim the annual investment allowance of £1m up to the end of 2021.  The qualifying expenditure must be new and not second-hand, so only acquisitions of unused buildings can qualify.

Certain ‘leased’ plant and machinery is also restricted.  In essence, if you lease an asset or lease space in a property, those assets for which the ‘control’ has been passed, will be excluded.  Where the landlord can demonstrate that they have retained control of the qualifying plant and machinery, such as for common areas to a multi let office, where the tenant has only a ‘right’ of access, then a claim can still be made.

There is also the potential for some clawback of the additional 30% tax relief for SDs, if the asset is sold within the period in which the temporary relief ends.

Conclusion

The claiming of individual equipment purchases is straight forward enough, albeit there will be an increase in administration to record those claimed assets.  The complexity applies where those potential qualifying assets relate to a wider building project and particularly where the capital project has a mix of landlord and tenant controlled assets.

In this scenario, applying an area calculation method will lead to under claiming and so a detailed valuation exercise will need to be undertaken by a capital allowances specialist, to fully benefit from these generous temporary tax reliefs.