News that commercial property owners are owed billions of pounds in unclaimed capital allowances should both alarm and excite professionals in the commercial sector. The number of commercial property owners that are aware that such allowances exist is shockingly low, and our research suggests that an estimated 96% of all UK commercial property and furnished holiday lets could be entitled to a refund. Additionally, with the average claim size being in excess of £100,000, this is an area where an appropriate level of effort will produce significant rewards.
By Shaun Murphy, CEO of Portal Tax Claims:
So, what are capital allowances and why is such an important opportunity being overlooked?
The answer is twofold. Capital allowances focus on a highly specialist area of the tax system and so it is no reflection on the professionalism or diligence of accountants that some allowances are not being claimed. Capital allowances are costs that businesses incur that can be reclaimed against tax as defined by the Capital Allowances Act 2001. They cover a wide range of commercial property from hotels, retail, industrial and multi-let properties and there are surprisingly few exclusions, such as if the owner is a charity or pension fund, and just a handful of qualifying criteria stating that the owner must be a UK taxpayer, but this includes individual, LLPs, PLCs and Ltd companies.
One of the main messages regarding capital allowances is that this is neither a tax avoidance scheme nor a recent loophole that HMRC are unaware of and will regard with suspicion. The primary aim of the UK statutory law dating back to 1878 was to allow commercial property owners to improve their property and the provision of this benefit holds as true today as it did then. The law has been revised and refined over recent years and was simplified in a major way in 1971 to eliminate burdensome record-keeping and computational requirements; a further simplification in 1984 saw the elimination of initial and first year allowances, among others. Further revisions followed in 1990 and the current legislation we are working to is the Capital Allowance Act 2001.
The role of the intermediary
There is little doubt that for those advising commercial property owners there exists some exciting opportunities. What will also be of interest is that, due to the fact that claims can be made retrospectively, intermediaries can make contact with clients they may have advised may years in the past and introduce an opportunity today that could save them tens of thousands of pounds. Not only will a proactive communication from an intermediary promote their professionalism to clients, but in the current environment an allowance in excess of £100,000 could be the difference between success and failure for a small business.
Another misconception that it is important to dispel is that capital allowances are the preserve of large industrial complexes and that the benefit will only be felt for premises costing in excess of £5m or £10m. The truth is that allowances for smaller properties can also be significant as we can see in the following example.
Case Study: Rural Pub/Hotel (Purchase price: £152,000 / Capital Allowance found: £39,712)
The New Inn Hotel in Stratford Upon Avon (pictured) is a quaint village freehold pub and hotel. It was purchased for £152,000 and after close scrutiny we presented the owner with a report that had identified capital allowances of £39,712 a staggering 26% of the purchase price. Qualifying for plant and machinery allowances on this property were a number of electrical items including emergency lighting, switchboards and switchgears and power supplies. Allowances for data and telecommunications were also made in the amount of £3,589 but it was the mechanical items that proved to be the most substantial. Items including gas, heating, hot water and ventilation installations contributed £14,997 to the total capital allowance.
In summary, complex legislation, the need for highly specialist expertise and a general lack of awareness all contribute to commercial property owners missing out on a substantial tax saving which is why intermediaries are so well placed to help. Whether a business owner is looking to refinance or whether it is a new purchase that an intermediary is helping to source funds for, making capital allowances one of the items to review could deliver huge rewards.
Contact Portal Tax Claims on 0845 000 0450 for further details or visit www.portaltaxclaims.com
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