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Capital allowances: are you underclaiming?

Jeremy Chapman Jeremy Chapman

With cash outflows under pressure from increasing tax rates and rising inflation, Jeremy Chapman looks at how you can reduce tax leakage by maximising capital allowances claims on capital expenditure.

Nearly all UK businesses incur expenditure on freehold or leasehold properties and should seek to claim capital allowances on this expenditure. It's common for capital allowances claims to be either underclaimed or completely overlooked. Businesses may not even be aware that such allowances were available.

Even those who believe claims have been maximised might be pleasantly surprised by a typical uplift of between 10% and 20% that can be found by specialists. In our experience this relief is being underclaimed in many cases. Our checklist below outlines some of the common areas where capital allowances relief can be found and improvements made.

Five checks to help maximise capital allowances

1 Underclaimed or overlooked claims are often due to a lack of construction cost of purchase information. Breaking down those costs can unlock additional elements for relief and improve the overall levels of claims.

2 Ensure you are claiming for all associated costs, such as preliminaries, professional fees and contributions for fit outs and other works.

3 The purchase of second-hand property can unlock opportunities for capital allowances claims. This is the case even if there's a Section 198 election in place to fix the level of capital allowances transferring as part of the transaction. These are just some of the scenarios where additional claims can be made:

  • Ensure that the Section 198 elections, which were agreed and signed at the time of your property purchase, have been claimed within your tax computations
  • The Commercial Property Standard Enquiry (CPSE) replies say not applicable – these replies can often contain errors, leading to significant underclaims and missed opportunities
  • the previous landlord made a contribution towards a tenant’s fit out
  • you're going to use the property for R&D purposes
  • the existing tenant is a non-taxpayer such as a government body, charity or the NHS
  • the seller held the property prior to 31 March 2008
  • the seller held the property as stock in their accounts and could not make a claim

4 Don’t assume that your accountant has claimed your allowance in full – not all advisers have access to capital allowances specialists.

5 Many think they can only claim capital allowances in the year that expenditure is incurred. This isn't the case, and if qualifying assets are still owned, a claim could be made. There are very few time limits in claiming these tax reliefs – for example, we review up to 15 years of historic expenditure to identify additional allowances.

If you have any questions arising from this insight or need help with your claims, please contact Jeremy Chapman. 

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