Is it too late to claim capital allowances?
A few years ago, your company refurbished its business premises but didn’t claim any tax relief because you understood it to be capital expenditure. A surveyor recently told you that most businesses do claim tax relief on such costs. Is this true and if so, is it too late? Associate Kenny Logan from our Edinburgh office explains.
Capital allowances
Unless you’re an expert, you are unlikely to know all the ins and outs of the capital allowances (CAs) rules. There are so many different routes to tax relief, some of which appear to lead to the same outcome. HMRC expects you to work out for yourself not only which expenditure qualifies but also which allowance to claim, e.g. full expensing, the annual investment allowance or writing down allowances, to name a few.
This can lead to qualifying expenditure being missed, particularly when undertaking multi-year projects and/or properties are involved.
Renovations
Typically, the expenditure which slips through the net is for integrated equipment, e.g. water, air conditioning, heating and lighting. These are known as “integral features”. Also overlooked is the cost of structural work to accommodate equipment and fixtures such as CCTV systems, fire alarms and fitted kitchens. Costs associated with the installation of such items can also qualify for CAs.
But don’t be put off if you don’t have a breakdown of costs. Whilst a detailed breakdown would make a review much easier, accurate breakdowns in relation to buildings and their fixtures aren’t that common in practice.
You can instruct a Capital Allowances specialist to visit the site and benchmark cost data based on their experience to prepare a CAs claim.
The good news
Having covered qualifying expenditure, we can move on to the question of timing. Most tax reliefs understandably come with a strict deadline but this time you’re in luck.
It’s never too late to make a claim for CAs providing you still own the items and use them in your business for the accounting period that you’re claiming for.
The deadline
However, there is a catch. The most generous relief is given as a 100% first year allowance (FYA), i.e. the annual investment allowance.
FYAs give 100% relief for the accounting period in which you incur the expense. If you don’t claim it for the year you incur the expense, the entitlement to 100% CAs is lost.
If FYAs cannot be claimed in time, the expenditure qualifies for writing down allowances instead. These only allow tax relief at 6% (special rate pool) or 14% (main rate pool) of the expenditure per year on a reducing balance.
EXAMPLE: XYZ Ltd spends £30,000 on a new air conditioning system in September 2026. Its year end is 31 December 2026. XYZ can use the annual investment allowance to claim relief on the full £30,000 in its tax return for the year to 31 December 2026. If the claim isn’t made in time XYZ can still get relief but it will be in the form of a 6% writing down allowance, which is just £1,800 for the first year, as these assets would be considered to be integral building features and therefore within the special rate pool.
You may be able to amend your tax return for the year in question to claim FYAs. You usually have twelve months from the filing deadline to submit an amended tax return.
IN SUMMARY
Expenditure on integrated equipment such as heating and lighting is often overlooked when it comes to claiming capital allowances. If you can amend your tax return for the year you incurred the expense, you can claim up to 100% relief. Otherwise, you can claim writing down allowances if the items are still used in the business. However, best practice is to get the right advice at the time of expenditure to ensure the correct allowances are claimed.
If you would like to discuss this further with the JRW Hogg & Thorburn team please do get in touch.
