QUESTION: I am building a new office for my business and I want to maximise the amount of tax relief available. What items should I be focusing on?
ANSWER: I’m ignoring stamp duty and VAT in considering your question as stamp duty would be payable on the cost of the land being purchased to build the office and VAT should generally be recoverable provided you do not operate an exempt trade (insurance for example).
The main focus should be in maximising the available capital allowances which are HMRC’s version of depreciation. Depreciation is not allowed as a charge against profits but capital allowances are.
The rate of capital allowance relief has varied greatly over the years and at present there is an Annual Investment Allowance (AIA) of up to £1 million a year available to your business. Capital allowances are claimable on plant and machinery and there will be obvious plant and machinery elements within your office building such as desks, chairs, computers etc.
There are, however, a lot of capital allowances that are too often overlooked by taxpayers in making their capital allowance claims via their income tax or corporation tax returns.
It is often said that the best place to hide something is out in the open, and this certainly is the case for capital allowances which are integral within the fabric of buildings. These items would include air conditioning units, alarm systems, fire escape systems with all the associated wiring, fuses etc to make these items work.
It is essential therefore that you engage very early on in your development project with a quantity surveyor who is well versed in capital allowances who will work along with your tax advisor in maximising your claim.
The starting point for determining whether items are eligible for capital allowances is a 19th century tax case in which plant was defined as “whatever apparatus is used by a businessman in carrying on his business”.
The word “apparatus” is where the difficulties in separating plant invariably centres around. The issue to consider is whether the item in question is apparatus with which trading activities are carried on or is it simply part of the premises within which the trading is carried on.
A grain silo is a good example, as it is obviously used to store grain but can have the purpose of discharging grain at speed which in one tax case was essential as the silo was a key part of a distribution business as opposed to a grain storage business.
In your particular case, your office building may contain partitioning and to be eligible for capital allowances the partitioning must do more than simply form part of the “setting” of the business premises rather if it is necessary to reduce sound levels, protect confidentiality etc. then it can very well be argued that it is plant.
This is a very complex area and one which requires detailed consideration as there could be tens of thousands of pounds of available allowances within your new office building. It is estimated that unclaimed capital allowances within buildings in the UK runs into the hundreds of millions of pounds.
:: Paddy Harty (firstname.lastname@example.org) is director at PKF-FPM Accountants (www.pkffpm.com). The advice in this column is specific to the facts surrounding the question posed. Neither The Irish News nor the contributors accept any liability for any direct or indirect loss arising from any reliance placed on replies.