Embedded Capital Allowances Claims

All businesses benefit from tax relief on assets purchased for use within the business.  These are commonly known as “Capital Allowances” and typically include items such as IT equipment, furniture and vehicles.

However, many assets that could qualify for capital allowance relief are often overlooked. The reason for this is that many of these assets are “embedded” within the structure of a building and, because of the practical difficulty in identifying and valuing them, these valuable tax relief assets are frequently missed within capital allowance claims.

If you are a business that owns property, there is a chance that you could make a claim for embedded capital allowances, which can give you a cash rebate from HMRC or a reduction in current and/or future tax bills.  The relief can be as much as 40% of the cost of a property.

Who can Claim?

Capital Allowances are available to UK tax-paying individuals and businesses that own commercial property in the role of owner-occupier (e.g. trade premises) or investor (e.g. landlords) and not a business for whom the expenditure would be incurred on a “trading account”.

In the instance where an old or newly-built property has been purchased, a new property has been constructed, an existing building has been altered, extended or refurbished or refitted, then the costs of certain items embedded in the property can be claimed

All commercial premises contain ‘plant and machinery’  and typical items that included in this tax classification are:  electrical, water, sanitation and heating systems, air conditioning, kitchen and toilet fittings, suspended ceilings, specialist electrical or security equipment,

Especially asset-rich properties include restaurants, hotels, retail properties, offices, pubs, nursing homes and hospitals and surgeries.

Is there a time limit to making a claim?

We recognise that many commercial property owners are likely to have purchased their estate many years ago.  This is not an issue and embedded capital allowances can be identified from the date of purchase all the way to the present day.   There is no time limit for claiming against costs used to buy or build property prior to 2012.  However, from April 2012, there are rules that apply to sales and purchases of second-hand property that impose a two-year time limit where allowances have previously been claimed or could have claimed.

We would typically expect to claim for embedded assets worth around 10-40% of the original purchase value of the property.  On a £500k property, this would represent around £125k in allowances, resulting in a £50k claim for the property owner.  All situations vary however, use our estimate calculator to see what you could be claiming.

How should I make a claim?

All claims have to be submitted and approved by HMRC before any tax relief will be given. There is significant specialist knowledge required to understand which assets will be eligible to claim and to identify opportunities within accounts that have not been previously explored.  This is an area of specialism typically outside of the remit of the average local accountant, but our specialist teams of tax advisors and surveyors  deal frequently with embedded capital allowance claims and have developed extensive experience and knowledge in this area. This means that they have the most up-to-date knowledge and an understanding of the common pitfalls and areas of intricacy that can cause problems.

At META we work on a conditional fee basis, meaning you will only be charged once your claim has been accepted by HMRC.  At the point of building your estimate, we will calculate and provide you with a transparent estimate and rate of our fees, based on the total claim that we will be making.  In addition, we only take our fee at the point that the rebate is paid by HMRC, even if this has been staggered across different years.  And, of course, our fees are deductible as business expenses.

Is there a difference claiming for new build and second-hand properties?

Although there is no difference in the process we use for making claims regardless of whether the property is a new-build or a refurbishment, the way in which you can use embedded capital allowances claims can be maximized if considered early within a new build construction project.   At design stage we may be able to advise on alternative assets or construction methods that may increase the amount of allowances available.  We can also meet with your team and advise on recording and format of record-keeping of assets, to save time and process claims more quickly, especially useful when aiming to increase cash flow during build projects.  If your project runs across accounting periods then we can even prepare interim claims to increase your cash flow throughout the build.