We regularly speak about the benefits of claiming capital allowances, but what about the downsides of not claiming this extremely valuable source of tax relief.
If you're a commercial property investor or business owner that has acquired and/or refurbished your commercial premises, the 5 points we cover below should give you some serious food for thought.
When businesses fail to claim capital allowances on their commercial property purchase or refurbishment, they may face several downsides, including:
Increased Tax Liability: Capital allowances allow businesses to deduct the cost of qualifying plant from their commercial property purchases or refurbishment from their taxable profits. By not claiming these allowances, businesses miss out on reducing their overall tax liability and means they will pay higher taxes than necessary, resulting in a financial burden.
Reduced Cash Flow: Claiming capital allowances provides businesses with a means to offset the costs of purchases or refurbishment against their taxable profits. By not doing so, businesses are unable to generate tax savings that could be reinvested back into the company. This lack of cash flow may limit their ability to fund future projects, expansion, or investment in new equipment.
Missed Opportunities for Investment: Refurbishments often involve significant capital expenditure, including costs related to the improvements and the installation of plant. By not claiming capital allowances, businesses effectively bear the full financial burden of these costs. This can make it challenging for them to allocate funds for other strategic initiatives or seize potential investment opportunities.
Competitive Disadvantage: Claiming capital allowances on commercial property purchase or refurbishment can improve a business's competitive position by reducing costs and improving profitability. If competitors are taking advantage of these allowances, they may have lower tax liabilities and, therefore, more financial resources to allocate towards growth and innovation. Failing to claim capital allowances can put a business at a disadvantage and hinder its ability to compete effectively.
Inefficient Resource Allocation: By not claiming capital allowances, businesses may inadvertently allocate more resources towards tax payments than necessary. These resources could have been better utilized in other areas such as research and development, marketing, or employee development. Inefficient resource allocation can hinder a company's overall performance and restrict its ability to achieve long-term success.
It's important for businesses to consult with a capital allowances specialist to ensure they maximize their entitlement to capital allowances and minimize their tax liabilities. Properly claiming capital allowances can have a positive impact on a business's financial health and enable them to make strategic decisions with greater flexibility.
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