ShopfloorShopfloor DEALER PROFILE: KNEES HOME AND ELECTRICAL ADAM BERNSTEIN: RETAIL EXPERT Spend and save
Every business will, from time to time, repa ir or improve their premises, and those that properly account for the work can make large savings against their tax bill.
58 expensive. Y
Ms Chen says that the first thing to get straight is whether the refitting costs relate to repair or improvement. “The distinction might seem pedantic, but it makes all the difference. If the costs relate to repair, they are deductible as an expense from taxable profit. If the costs relate to improvement, however, HMRC considers them to be capital expenditure: as such, no deductions from taxable profit are allowed.” Essentially, she says that replacing or fixing something to get premises back into working order is fine as a repair but do anything further and the business could stray into capital expenditure. The fact that the premises has a maintenance problem that must be dealt with doesn’t necessarily make the refitting costs deductible as repair. HMRC also gives the example of a business owner who had a new shop front put in when he took over premises. The replacement of a shop front would normally be deductible as revenue expenses, but the fact that the shop owner adapted the shop front to his specific needs makes it an improvement, and therefore capital expenditure.
The good news is that if the business ends up with capital expenditure and can’t deduct that cost straight from taxable profit, it may still get tax deductions in the form of capital allowances. Ms Chen says that “changes were announced in the October 2018 Budget in this area, and it’s well worth taking specific advice”.
She then points to the Annual Investment Allowance (AIA), which allows a business to claim tax deductions upfront on the full amount of qualifying expenditure in the year it’s incurred: “Businesses looking to invest seriously in refitting over the next two years can take comfort knowing that the AIA has increased to £1 million, up from £200,000, from 1 January 2019 to 1 January 2021. Advice from your accountant here will also be invaluable.”
The AIA is available on both plant and machinery and integral features. Over and above the AIA limit, lower capital allowances
en-Pei Chen, Manager of Corporate Reporting and Tax at the ACCA, an accounting body, warns that poor project accounting can be very
November 2019
ertonline.co.uk
Replacing or fi xing something to get premises back into working order is fi ne as a repair but do anything further and the business could stray into capital expenditure.
are available each year, on a reducing balance basis. This is currently at 18 per cent for plant and machinery and at six per cent (from April 2019) for integral features. Ms Chen offers one easy tax planning tip: prioritise integral features over plant and machinery when making AIA claims. She says this is because capital allowances are available at a lower rate for integral features, “so the more integral features the business can get 100 per cent AIA on the lower the tax bill will be”. To qualify, the expenditure has to be kept
‘for permanent employment in the business’: in other words, this excludes stock or expendable equipment with a life of less than two years; and function as ‘an apparatus employed in carrying out the activities of the business’ and not as part of the premises in which the business is carried on.
“The basic principle,” says Ms Chen, “is that anything which can reasonably be expected to form part of the building – for example, walls,
partitions, ceilings, floors, doors, windows and lighting – should be considered to be premises and not plant.”
She adds, though, that if the criteria for plant doesn’t apply, it may be possible to look at special rate allowances which are available on assets which are integral to buildings, including electrical systems (including a lighting system), cold water systems, space or water heating systems, powered systems of ventilation, air cooling or air purification, and any floor or ceiling comprised in such a system, lifts, escalators or moving walkways, or external solar shading. The October 2018 Budget introduced a new
Structures and Buildings Allowance (SBA). As Chen says, “this gives a two per cent flat rate annual allowance on commercial structures and buildings over a period of 50 years. The new SBA is available to renovations and conversions started after 29 October 2018. It’s worth noting that the buildings covered by the SBA won’t qualify for the AIA.”
This allowance is available to incorporated businesses and sole traders alike. But to access the allowance, the business will need to have an interest in the land on which the building sits. One final piece of advice from Chen: keep
clear records, and separately identify each item of expenditure. “Be prepared to back up claims with invoices and a breakdown of the works carried out if and when HMRC asks for details.”
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 |
Page 45 |
Page 46 |
Page 47 |
Page 48 |
Page 49 |
Page 50 |
Page 51 |
Page 52 |
Page 53 |
Page 54 |
Page 55 |
Page 56 |
Page 57 |
Page 58 |
Page 59 |
Page 60
