Boost Cashflow by Claiming Tax Allowances

The Government’s initial coronavirus tax assistance package to businesses focused on late payment of tax and offered time to pay to give breathing space. Whilst welcome, the limited nature of these measures has made it more vital than ever for care home owners and occupiers to fully take advan- tage of existing incentives and reliefs. These can reduce tax bills to retain cash in the business or even generate cash repayments from the Government.

Capital allowances are a government tax break intended to encourage investment in business assets by allowing those investments to be written-off for tax. They improve cash flow by reducing the amount of tax that needs to be handed to HM Revenue. In the right circumstances they can even generate a cash repayment from the tax man by rectifying a previous year’s tax return where relief was underclaimed, meaning that too much tax paid at that time can now be reimbursed to the business.

Currently each year, up to £1 million of qualifying spend can be 100% writ- ten-off for tax in the year the money is spent using an ‘Annual Investment Allowance’ (AIA). Although the Government intends to reduce the AIA to just £200,000 from January 2022. So, a fading opportunity exists to make the most of this generous cap whilst it is still available.

Most care home providers and their advisers are aware that plant and machinery capital allowances are available for furniture and furnishings, and

business apparatus such as moving and handling equipment or laundry machines, and these allowances are straightforward to claim in practice. But it is less commonly realised that allowances are also available for assets

By Steven Bone, director and capital allowances specialist, Gateley Capitus (www.gateleyplc.com)

integral to the fabric of a building when an owner or operator buys or constructs care premises (including new- builds, extensions and refurbishments).

Also, from the end of 2018 a brand new kind of capital allowances was created by the Government called ‘struc- tures and buildings allowances’ (SBAs). This, for the first time, gives care home owners and occupiers relief for ‘bricks and mortar’ type expenditure which was previously not eligible for any tax relief (albeit SBAs relief is given at a slower rate than the tax write-off for plant and machinery).

But the trouble is that in practice it can be difficult for a general practice accountant or tax adviser to maximise capital allowances claims for premises spend. To prepare the claim, the property needs to be broken down into its constituent parts. For example, electrical power and lighting, hot and cold water, heating systems, bathroom fittings, fire alarm installations and so on. Then each must be costed separately and grouped together in the tax return with other assets that have similar tax characteristics. This not only needs an understanding of the detailed tax rules, but also ideally requires construction knowledge and surveying skills that accountants and tax advisers ordinarily do not have.

For purchases of care premises there are additional traps for the unwary because there are vital steps that need to be taken at the time of the transaction. But under the pressure of getting the deal over the line these are often overlooked or dismissed as being unimportant. Unfortunately, that usually means that valuable tax allowances are lost and can never be recovered. Whereas, in practice there is usually no reason why the value of capital allowances cannot be considered and appropriate action taken which should not delay or frustrate the purchase.

If you are buying, building or refurbishing care premises, thinking of doing so, or have done so in recent years it is well worth speaking to a capital allowances specialist.

About the author: Steven is a tax-qualified chartered surveyor. For more than 20 years he has specialised in capital allowances, and more recently land remediation relief and R&D tax incentives.