Over the past few years we have heard a lot of myths on social media and the grapevine about capital allowances and how they work, so we thought we would set the record straight between the myths and how it actually is.
After going through some myths recently brought to our attention, we chose the two most common ones mentioned to us.
1) "You can 100% go back two tax years to claim a tax refund"...
Whilst there is an opportunity for established business owners with retrospective property purchases to go back two years to claim a tax refund, this will NOT work for everyone and is NOT a blanket statement that fits all unlike some suggest.
Most clients we speak to have purchased their properties within the past 12 months and this will result in future tax mitigation only, with no tax refund.
New commercial property purchases can not be backdated for the purpose of claiming a tax refund in a tax year prior to your official ownership. You can only go back two years if you have owned the property for two or more years... simple.
However there is a silver lining for recent purchases and you could find yourself in a better position.
By using the annual investment allowance this incentive allows businesses to write off up-to £1,000,000 of qualifying expenditure in the year its incurred, in turn leaving you completely tax free moving forward until exhausted. In our opinion this is as good as it gets and is basically a license to print money.
2) HMRC will send confirmation your capital allowances claim is accepted...
The above statement is a total myth and sales tactic, you will never receive confirmation that your capital allowances claim has been accepted, apart from after a HMRC enquiry/investigation is concluded.
Only once HMRC have enquired into the basis of the capital allowances claim, which is more than likely going to involve a visit from the local district valuation officer, will a claim truly be accepted by HMRC assuming they agree with the figures submitted.
Claiming capital allowances is the same as claiming for any other business expense like advertising, mileage, stationary costs etc. HMRC do not write to you accepting each and every expenses submitted in your tax return each and every year, and the same goes for capital allowances. HMRC merely reserve the right to question these expenses should they wish too within an allotted time frame.
Note - Receiving a tax refund is not confirmation of acceptance either. HMRC have a policy of pay now, ask questions later.
Whilst there are a lot of myths, sale tactics and misinformation being put to you with regards to capital allowances, the benefits of making a claim speak for itself.
One thing to remember with capital allowances is that every case/property is different and there is no "one size fits all approach".
The best piece of advice we can give you is to speak to a specialist capital allowances firm that will give you an overview of your specific scenario, just keep an eye out for the red flags above.