FOR THE UK’s businesses, these are straitened times. The economy is shrinking, unemployment is rising, consumers aren’t spending and the banks – in many cases, anyway – aren’t lending, so directors are being forced to make every penny count.
The irony is that many businesses, or certainly those that own commercial property, will have been sitting on a sizeable cash benefit from HM Revenue & Customs (HMRC) all along – but one that they’ve not been made aware of. This cash benefit comes in the form of unused capital allowances.
According to research by Deloitte, and this correlates with our own experience, more than nine in ten owners of UK commercial property – from the smallest newsagent to a 30-storey office block – will be due a rebate from HMRC through unused capital allowances tax relief.
And because this tax relief can be attributed to any building of any age, there are billions of pounds of net tax rebate languishing unclaimed in the UK’s commercial property stock. It would be impossible to give an exact figure but we estimate that it’s in the region of £65bn-£70bn.
To date, thousands of commercial property owners have made successful claims, with the average claim in excess of £100,000 and the biggest amounting to tens of millions. But these thousands own only a tiny percentage of the estimated 1.4 million UK commercial properties that are out there.
Scratching under the surface
Finance directors will almost certainly be familiar with capital allowances. They’re a form of tax relief available to anyone incurring capital expenditure buying, building or making adjustments to commercial property.
But why is so little known about the tens of billions of pounds of unclaimed capital allowances? Firstly, HMRC, understandably, isn’t that keen on alerting too many people to it, especially at a time when the Treasury’s coffers are all but bare.
Secondly, the problem, historically, has been that identifying capital allowances within commercial properties is extremely complex, so much so that even accountants only scratch the surface.
Indeed, while accountants will claim on more obvious items such as shutters and curtains, fire extinguishers and carpets when a client buys a commercial property, generally speaking they will not drill down to the items where the far more significant costs to a business lie. These might include air conditioning or heating systems, lighting and security systems, plant and machinery items.
The issue for accountants when a client buys a property is that they will not have receipts for all the potentially qualifying assets within that property. Therefore they simply can’t progress it any further.
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Specialist capital allowances firms, on the other hand, use thousands of different matrices to work out the purchase price of such and such an item in a building in a particular area in a particular year. They enter a building and essentially undertake a forensic audit, drawing on a far more detailed understanding of capital allowances practice and law.
Don’t be an April fool
On 6 April, new capital allowances rules are being implemented, where any tax rebates will be based on the previous owner’s purchase price of the building, not the price at which the current owner bought it. Therefore, if the value of a property has increased, companies planning to buy a commercial property should do it before that date or they could lose lose a significant chunk of their potential tax rebate. Of course, if the value of the property they are buying has dropped, they are potentially better off waiting until after 6 April.
Mark Tighe is managing director at C A Tax Solutions