Capital Allowances for fixtures & fittings 

A large proportion of our work revolves around capital allowances on fixtures. This is highly relevant if you are buying/selling, building, renovating or simply own a property.

The low profile of capital allowances and the complexity of the rules relating to fixtures have resulted in tens of billions of pounds of tax relief going unclaimed, so you might very well be sitting on a substantial untapped tax windfall.

Back in late 2011 the thought of a huge latent claim coming home to roost caused Mr Osborne many sleepless nights (deep into the credit crunch there was of course nothing else worrying him!). To reduce this risk to the Exchequer the Finance Act 2012 brought in wide reaching changes to capital allowances on fixtures.

Capital allowances on fixtures not only represent significant opportunities but are now also a veritable mine field waiting to blow up in the face of the uninitiated.

What are capital allowances ?

In short capital allowances are a form of tax relief given in place of depreciation (which is not allowable for tax purposes) on qualifying items of plant and machinery. This extends too many fixtures and integral features in a commercial building (and some larger residential ones) such as the plumbing, electrics, security system and fire alarms to name a few. Whilst claiming allowances on the movable items (machinery, vehicles etc.) is nothing extraordinary, many are unaware they are entitled to claim a proportion of the purchase consideration of a property? This is allowed because the purchase expenditure was deemed to have been in part for the fixtures in place at the time. Furthermore, due to the difficulties of accurately valuing systems imbedded in a property and the maze of case law in this area, allowances are often inaccurately assessed and processed even when taxpayers are aware of their right to claim. This means that many businesses are claiming only the tip of the allowance iceberg while most of the value remains hidden.

Historic capital allowance claims ?

Calculating an apportionment of the original purchase consideration can deliver claims as large as 35% of the value of a freehold i.e. £350K of tax relief for a purchase of £1m. This work requires a fusion of tax and surveying expertise that is rarely found in general accounting firms. Churchill Tax has many years’ experience of successfully making such claims in a manner compliant with HMRC and the VOA guidelines. Accurately assessing qualifying items and processing a claim will in many cases form the basis of a substantial write off against the taxable profits of a business, resulting in a lower tax charge or even in some cases a cash rebate. Allowances are transferable at the point of sale, generally by section 198 election ‘s198’ (a s198 is a jointly signed election detailing the fixtures and fixing their corresponding transfer values). These elections are often overlooked and are poorly understood by a large section of the conveyancing community. This has led the Treasury to suspect that double claiming may be occurring and motivated them to bring in new legislation to effectively enforce the use of these elections