Are You Burning Your Clients Money?

A £74,005 difference in tax relief from one oversight.


The newly introduced structure and buildings allowance gives business owners and property investors the opportunity to claim tax relief on capital expenditure incurred on building works that were previously not subject to tax relief.


Structure and buildings allowance is claimed on a 2% straight line basis over 50 years and includes commercial property refurbishments, new builds and alterations, but cannot be claimed on land or under the annual investment allowance.


In addition to the structure and buildings allowance there are plant and machinery allowances which are claimed under capital allowances at rates of 18% or 6% with recent expenditure qualifying to be written off under the annual investment allowance which is current set at £1,000,000.

Fairly simple, but there’s a problem….


After over hearing a conversation it seems some accountants are open to claiming a straight up 2% deduction on the total cost of the construction of the building including plant and machinery.


This could be due to lack of awareness as to the scope of plant and machinery allowances or a negligent attempt at adding “value” when in real terms the client ends up paying more tax than is required.


Here are two examples, same expenditure, different treatment – two very different results.


Assuming a limited company constructs an office for £1,000,000


Accountants “A” claims SBA on the total cost


Capital Expenditure Incurred = £1,000,000

SBA (yearly) = £20,000

First Year Tax Relief = £3,800


Accountants “B” refer client to a specialist


Capital Expenditure Incurred - £1,000,000

Capital Allowances = £400,000

SBA = £475,000

Land (non-qualifying) = £125,000


SBA (yearly) = £9,500

SBA First Year Tax Relief = £1,805

Capital Allowances (AIA) = £400,000

Capital Allowances Tax Saving = £76,000

First Year Tax Relief = £77,805


A £74,005 difference in tax relief from one oversight.


Not only have accountant’s “A” disregarded plant and machinery and the chance to claim a huge portion of the client’s expenditure under the AIA, they have also claimed SBA on land which is not eligible for tax relief.


Conclusion


Capital allowances and the structure and buildings allowance can be hugely beneficial for the end client when a full analysis is completed correctly, in line with current legislation and utilising tax incentives to minimise their tax burden.


This area of taxation is complex and requires a dual skill set in order to complete a comprehensive review of the construction/build costs to properly distinguish between qualifying and non-qualifying expenditure.


If you wish to find out more about capital allowances and/or the structure and buildings allowance, please get in touch with us on 0843 005 9711 or email matthew@jamesnazir.com.

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JAMES NAZIR & CO - CAPITAL ALLOWANCES

The Innovation Centre

Maidstone Road

Rochester

Kent

ME5 9FD

0843 005 9711

© James Nazir Limited. Company Number. 10018666

VAT Number - 296 2020 08

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