Finance


Capital allowances don’t have to be taxing


Mark Anthistle, senior capital allowances analyst at tax relief specialists Catax, explains help available to care homes at this challenging time


The ongoing Covid-19 pandemic has had a devastating impact on society as a whole but perhaps no more so than at care and nursing homes across the country. A claim for capital allowances could


result in a tax rebate, which can increase the cash flow for the business to be potentially re-invested in much-needed residential care. Capital allowances are an important,


yet sadly underclaimed, form of tax relief available to UK businesses, including those that own a commercial property used in the day-to-day running of the company.


What are capital allowances? Capital allowances reduce the tax liability for a UK business on their profits for an accounting period. They are available at a value equal to the cost of the qualifying capital asset. Depending on when the asset was acquired, the relief could be available in full or be claimed over several years. For example, a restaurant owner could


purchase a new range of commercial kitchen equipment totalling £10,000. They could then claim capital allowances on this expenditure and reduce their taxable profits by £10,000 which, for a higher rate taxpayer, would generate a tax saving of £4,000. Ongoing additions to a business, such


as tables, chairs, beds, curtains and so on, will attract tax relief in the form of capital allowances and have some positive impact on the taxable profits. Still, the real value lies in the items of fixed plant that were acquired as part of a property purchase. A commercial property acquired for


£500,000 could possess a value qualifying for capital allowances in the region of £100,000 to £150,000. As you can see, we are not talking about insignificant amounts of benefit here - the potential tax savings are enormous. Typically, capital allowances are easily identifiable for accountants on individual


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assets purchased during the year. For example, a new computer would


qualify in full for capital allowances, so an accountant can allow for this when completing their client’s tax return. They will be provided with an invoice or receipt from which they can obtain the cost of the asset to be added to their calculations. However, when considering the


acquisition of a building, not all of the cost will qualify for capital allowances. When the property is acquired, it does not come with a breakdown of each component to allow the accountant to extract the portion of the expenditure which qualifies. That does not mean the accountant is


doing anything wrong by ignoring the property purchase for capital allowances purposes; it merely means that they do not have the specialist knowledge required to value the qualifying assets to a level of accuracy deemed acceptable by HMRC. To demonstrate this further, consider


a GP. If you have a problem with your back, you may be referred by your local GP to a chiropractor who specialises in that particular part of the body. That is not to say your local GP has failed you. They have acted in your best interests by referring you to a specialist who is an expert in this specific area. This is the same with capital


allowances. Maximising the tax relief requires the input of a capital allowances


We are not talking about insignificant amounts of benefit here - the potential tax savings are enormous


Mark Anthistle, senior capital allowances analyst, Catax


expert, who has the tools, knowledge and experience necessary to complete the exercise on behalf of the client and advisors. As stated above, not all components


which make up a building qualify for capital allowances, but a significant amount do. In basic terms, anything fixed to the property which does not offer a structural function is likely to qualify for capital allowances. So, elements such as the walls, roof,


windows, doors, stairs, and the land itself do not qualify. However, installations including heating, lighting, electrics, sanitary, plumbing, lifts, etc. do qualify. Those items, when put together, can add up to a substantial tax saving.


Care home help The level of qualifying plant within a building varies depending on the type of property and when it was acquired, with the qualifying percentage of the purchase price ranging between 10 per cent and 30 per cent. We would expect care and nursing


homes to be at the top end of this range though, given the high level of trade- specific installations typically found in a property of this type. The standard installations are found in most commercial properties, such as


www.thecarehomeenvironment.com• August 2020


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