Is this a Loophole?

In a separate post, we looked at capital allowances that are allowed as a deductible expense for computing taxable income. We noted that capital allowances allow long-term expenditures, such as on buildings, plant & machinery and furniture, to be written off as expenses over their expected useful lives. We noted in particular that computing capital allowances on buildings is a complex exercise that accountants are not typically equipped to handle well.

The complexity of capital allowance claims on buildings might make people think that these involve taking advantage of some loophole in law which might be resisted by tax authorities.

Let us look first at what the term loophole means.

In the context of law, it typically involves wording that can be interpreted in an ambiguous manner allowing people to interpret it in their favour and avoid complying with the intended legal obligation. It can also involve an omission while drafting the law that enables people to circumvent it by taking advantage of the omission in some way.

Capital allowance claims are not based on any such loop hole. It is based on specific provisions of the law intended to encourage investment in capital assets. Based on established law dating back to 1878, it confers a right on taxpayers which they can claim in a straightforward manner and without recourse to any devious practices.

In fact, thousands of capital allowance claims on buildings have been made and paid out. The goal should be to prepare a detailed report that will clearly list the items and the reasons why these items are eligible for capital allowance. In addition to being accurate, the report should also ideally be in a format approved by HM Revenue & Customs.

This is a task for surveyors and valuers, and also requires familiarity with the complex provisions of capital allowance regulations as they apply to buildings.

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