Capital Allowances

What are Capital Allowances?

In short, Capital Allowances reduce profits chargeable to tax, so create lower tax bills. Capital Allowances is a UK legislated tax relief available to businesses that spend Capex on buildings and fixtures within – commonly referred to as the provision of plant and machinery. Capital Allowances allow UK taxpayers to write off most of the cost of certain capital assets within their property expenditure to keep their taxes as low as they can be, whilst encouraging and incentivising investment and improvement in the commercial property sector.

The original Capital Allowances Act goes back to 2001, and has seen several alterations since, notably in 2012 (implemented in 2014), 2018 when Structures and Building Allowances (SBAs) were included, the Super Deduction in April 2021 and now more recently in the Autumn Statement 2023 when Full Expensing was brought into the equation.

Would my business qualify for Capital Allowances?

The minimum criteria to potentially qualify for a CA claim are:
1. The business is a registered UK business
2. Pays UK Corporation Tax
3. The business / director is the current owner (or lessee in certain instances) of the property.
4. The property concerned is a commercial property

What qualifies for Capital Allowances?

The acquisition, fit-out or refurbishment of a commercial property would qualify, including the development of new buildings. Plant replacement works, new machinery and improvements to the structures supporting such machinery also qualify.

Some examples of qualifying property types are:
1. Industrial sites and Factories
2. Restaurants
3. Gyms
4. Shopping centres & Office blocks
5. Hotels & B&Bs
6. Student accommodations
7. Care homes
8. Medical centres

What tax rebate / deduction do I get?

It very much depends on the property and what it facilitates. An easier way of imagining the potential value of a claim is by checking the property itself, the more “stuff” inside it the higher the value e.g. a warehouse is normally just a basic construction with large floorspaces and perhaps a mezzanine floor, as opposed to a commercial office block with lifts, gyms, restaurants and medical facilities on the ground floor … the more “stuff” there is the larger the claim will be.

It is not uncommon for commercial properties to achieve at least 30% of their costs, with some reaching up to 80% (such as hospitals or data centres).

As an example, if your property cost £1m to construct and fit-out, and the Qualifying Expenditure for the Capital Allowances exercise was say £500k and your CT tax rate was 25%, your business would gain a tax deduction on your profitable income of £125k. Quite substantial!

How do I claim and what is the process?

Capital Allowances are not automatic, a business has to make a claim in their annual tax return. Due to the nature of the claim, a combination of Corporation Tax knowledge and Quantity Surveying is required in order to get the full benefit of a Capital Allowances claim. We always work with your accountants in this process.

Our flexible process is the following:
1. An initial scoping call – this is where we qualify the potential CA claim
2. Letter of Engagement – the contract between the property owner and ourselves, setting out the scope of work and fee structure.
3. Entitlement check – ensuring that the property is owned by the claimant
4. Financial – we obtain the relevant financials from the business or their appointed accountant
5. Survey & analyse – our inhouse surveyors and tax analysts work together in assessing the value of the potential claim in definitive detail.
6. Analyst’s report – our experts provide a full report with relevant tax computation ready for the client to use with their tax return and submit it to the client or accountant.
7. Completion – we invoice for the work done based on the terms of the LOE.

What does it cost?

Our fees are normally based on a contingent fee basis i.e. a percentage of the Qualifying Expenditure identified in our CA report. This fee percentage may vary depending on the complexity or size of the project. We have on occasion set a stated fixed amount fee, dependent on the client and project involved. We would ensure the fee is presented, discussed and agreed upon at commencement of the project.

Our fees are fully inclusive on all costs of preparing the CA claim report i.e. quantity surveyors, analysts and administrative work are included. Should there ever be a HMRC enquiry into the CA claim, we would provide full support as required. It should be noted, if no Qualifying Expenditure is identified, for whatever reason, there is no fee.

Case studies

Poultry Farm – New Build - Poultry farm spends £3 million on a new build shed - 100% of this should qualify for Capital Allowances. £3 million in Capex x 19% CT rate = Tax Saving of £570k for the client.

Software Company – Refurbishment - Software company spends £500k office refit/refurbishment - up to 80% would qualify for CA’s. £500k in Capex x 80% = Qualifying Expenditure of £400k x 25% CT rate = Tax Saving of £100,000 for the client.

Restaurant Acquisition for Hospitality Group – Acquisition - Capital Allowances claim on a £850k acquisition of a freehold restaurant site in London. £850k in Capex x 15% qualifying = Qualifying Expenditure of £127,500 x 25% CT rate = Tax Saving of £31,875 for the client.