Are you making the most of your tax allowances? Jeanette Edmiston explains how small businesses could be saving money through their fixtures and fittings.
The definition of qualifying expenditure has been stretched to include bowling alleys, fish tanks, zoo cages and artwork. Photograph: Linda Nylind for the Guardian
Small and medium businesses have had more than their fair share of misfortune during the downturn, and so are understandably seeking new ways to maximise profits. Thanks to an important tax break however, help could be at hand from that most unlikely of benefactors – HMRC.
Many businesses that own their own property already claim capital allowances, but not many claim them to the full extent. In fact, over 90% of commercial properties are said to be unclaimed on, with the tax relief available often being equivalent to over 30% of the building’s purchase price.
Making tax breaks work for your business
These potentially huge tax breaks are tied up in the property’s plant and machinery fixtures, but what does this mean? ‘Machinery’ is easily defined, but ‘plant’ is less so, and encompasses items from door closers and panic bolts to security and air conditioning. This list is in no way exhaustive and the definition of qualifying expenditure has been stretched to include bowling alleys, fish tanks, zoo cages and artwork. One person even tried to claim on a horse!
In principle, claiming capital allowances is a simple process, provided you know the legislation and related case law. Following an examination of your property and submission of a report to HMRC, a proportion of the money that these fixtures are worth is claimed back against your company’s taxable profits.
It is worth remembering that capital allowance claims on existing fixtures can only be claimed once in a building’s lifetime. It isn’t just the value of the fixtures that can be claimed – a proportion of capital expenditure incurred on fees and other incidental costs can be claimed too. In some cases some or all of the VAT can also be claimed.
This also applies to refurbishment, alteration, extensions and new installations, and can also include the costs of consultants for the design, project management and installation of the item, plus any specific costs you can attribute (for example, transportation costs or craneage costs). Small businesses need to be aware of this and should keep comprehensive records and itemised receipts to take full advantage of the rules.
Small businesses are havens for potential tax relief
Hotels, bars, factories, restaurants, offices and many more commercial properties are all potential treasure chests of capital allowances. As an example, a business we recently worked with running a small local hotel they purchased for £748,800 was able to claim £301,667 in tax relief against its profits.
This will be news to many small businesses for the simple reason that they don’t have access to the same expertise that big companies do. The biggest accountancy firms are already claiming on behalf of their international clients but the truth is that tax relief on £301,667 will make a much bigger difference to the margins of a medium sized hotel company than it would to the likes of Hilton.
While the financial considerations for identifying, recording and claiming these allowances can seem large, the rewards for doing so are usually more than worth it. If more small businesses start to take advantage of these generous rules, this really could be Britain’s biggest tax break.