Finance
but following the Autumn Statement it will be made permanent,
These recent incentives have provided some of the most beneficial values of capital allowances I have seen in over 30 years of practice in the field, and have reversed the trend of squeezing allowances values with minor rule changes which was prevalent from between 1993 to 2015.
Care home development example In the total costs of a development of a modern care home, with full furniture, fixtures, and equipment (FF&E), a split of the allowances between these claimable categories could easily be as shown in Table 1 below.
For a £5m development, the eventual tax relief at a 25 per cent corporation tax rate would be £1.25m and an indication of the early cash flow of the tax saving is shown in Table 2 below.
The result is that 10 per cent of the cost could be immediately mitigated by tax savings, assuming the company has the relevant tax liability.
Claims can include the apportionment of professional advisors costs, which will also become claimable dependent on the type of advice in relation to the works.
Care home refurbishment example Refurbishments will be more beneficial, with higher proportions of general plant and machinery and integral features, as it is most likely that you will be retaining most of the items that would be more of a structural nature. Where you are refurbishing an existing home, you are also likely to have the ability to claim the following additional items: n Demolitions of existing qualifying items claimable at the relevant qualifying category rates.
General plant & machinery 20 per cent Integral features
25 per cent
Structure & building allowances
Table 1
Category of allowance General plant & machinery Integral features
Structure & building allowances Total
Table 2 May 2024
www.thecarehomeenvironment.com Value
£1,000,000 £1,250,000 £2,750,000
£5,000,000
Year one tax saving £250,000 (using FE)
£250,000 (using £1m AIA) £20,625
£520,625 55 per cent
Category of allowance General plant & machinery Integral features
Structure & building allowances Repair & maintenance Land Remediation Relief
Total Table 3
n Works incidental to the installation of qualifying items. The classic example is the claim value of the installation of a lift in a new building only means the lift cost itself. Where one is installed in an existing building, you can claim any associated structural works including a new lift pit, shaft, and overrun, which can double the allowable value.
n Repair and maintenance costs, which can include like for like replacement and are 100 per cent tax deductible in the year of expenditure.
n Land Remediation Relief. Where it is necessary to undertake some remediation of deleterious materials, such as asbestos, this qualifies for either a 150 per cent deduction or a tax credit where you are a loss making company.
In the total costs of a refurbishment of a modern care home, the split between claimable and deductible categories could easily be as shown in Table 4 above right. For a £2m refurbishment, the eventual
tax relief at a 25 per cent corporation tax rate would be £0.5m and an indication of the early cash flow of the tax saving is shown in Table 3 above.
The result is that 23 per cent of the cost could be immediately mitigated by tax savings, assuming the company has the relevant tax liability to shelter. What the allowances generally mean is that all property expenditure can be deductible from tax, with a few exceptions around legal costs and other costs deemed to be too remote from the actual building expenditure. The recent additional incentives mean much of the expenditure
General plant & machinery 35 per cent Integral features
Structure & building allowances
Repair & maintenance Land Remediation Relief
Table 4
will be claimable, or deductible, in the year it is incurred. Assuming there is the tax liability to take this, it significantly accelerates the cash flow of the tax savings.
Optimising the values of capital allowances As can been seen from the information above, there are certain categories of allowance that are more beneficial than others. Therefore, the maximisation of the allowances within the most beneficial categories will be key to the best tax saving outcome. However, there is a great need to ensure you are not contravening the legislation, case law, and practice in this area, as negligence and, potentially, fraud can be very damaging to relationships with HM Revenue & Customs, which is never a good thing. There is a need to know the legislation,
case law, and practice in detail, and if this is the case, it is possible to optimise the values without this potential risk. The other area of knowledge, as we are dealing with building costs, is around building technology and practice. This helps to ensure that when you are looking at the detailed construction costs and associated professional fees and direct expenditure, you understand how it relates to the items within the claimable categories set out earlier. Additionally, a good knowledge of building costs and estimating practice will also help. Armed with these areas of knowledge
you will need to obtain the most detailed breakdown of the project cost available, which is often within the realm of the project cost consultant or the building contractor. In circumstances where the detailed breakdowns are not available you are still able to produce a breakdown
33 40 per cent
10 per cent 10 per cent 5 per cent
Value
£700,000 £800,000 £200,000 £240,000 £60,000
£2,000,000
Year one tax saving £175,000 (using FE)
£200,000 (using £1m AIA) £1,500
£60,000 £22,500
£459,000
Page 1 |
Page 2 |
Page 3 |
Page 4 |
Page 5 |
Page 6 |
Page 7 |
Page 8 |
Page 9 |
Page 10 |
Page 11 |
Page 12 |
Page 13 |
Page 14 |
Page 15 |
Page 16 |
Page 17 |
Page 18 |
Page 19 |
Page 20 |
Page 21 |
Page 22 |
Page 23 |
Page 24 |
Page 25 |
Page 26 |
Page 27 |
Page 28 |
Page 29 |
Page 30 |
Page 31 |
Page 32 |
Page 33 |
Page 34 |
Page 35 |
Page 36 |
Page 37 |
Page 38 |
Page 39 |
Page 40 |
Page 41 |
Page 42 |
Page 43 |
Page 44
