Businesses are failing to claim tax relief on fittings in commercial properties, experts say, which could save them billions of pounds
- guardian.co.uk, Monday 19 March 2012 13.41 GMT
British businesses could save billions of pounds if they claimed full tax relief on the commercial properties they own, according to City experts.
Taking advantage of capital allowances, companies can claim tax relief on fittings such as air conditioning, radiators, pipework, cabling, lighting and security systems – anything relating to the intrinsic fabric of the building – even if the property was bought a decade ago, according to Peter Millwood, tax partner at Deloitte.
But while accountants routinely claim on everyday purchases such as curtains, carpets, fire extinguishers and radiator covers, they often fail to claim on other, less-easy-to-spot fittings.
Without receipts, a detailed analysis is needed to ascertain the correct value of the qualifying assets within the property. Also, companies can only claim for an item once and need to check that a claim has not been made before. Specialist firms send forensic surveyors to draw up a list of all the fittings in every room, including hidden cabling, then feed it into a computer model with 8,000 different matrices that comes up with, say, a price of £47.50 for a door bell in an office built prior to 1950 in a certain area.
Millwood said the "sheer scale of legislation to battle with" was putting many smaller firms off. "In most cases, business don't claim as much as they could claim, and there are still many businesses who don't claim at all … it could be billions of pounds," he said.
There are about 1.4m commercial properties in England and Wales, according to government figures, ranging from fish and chip shops to the Gherkin. On a typical £1m property, a Capital Allowance specialist would typically find £200,000 of unused capital allowances, which, assuming a mid-point between the higher-rate and lower-rate tax bands, means there is £65bn to £70bn in net tax rebates sitting unclaimed in commercial properties.
As for a typical SME with a commercial property, it could save about £25,000.
On 6 April, changes to the capital allowances rules kick in that could see "unwary buyers unable to claim writing down allowances on many investments", said Millwood. "Up until April, most buyers will continue to be able to attribute part of their cost of acquisition of commercial property to plant and machinery and claim tax relief against their profits. The amounts can be considerable, and can radically affect the viability of deals. From April, a buyer acquiring property from a seller who has claimed writing down allowances will not be entitled in most cases to claim going forward unless an election [written agreement] is in place."
Also, the annual investment allowance – the 100% write-off for plant and machinery, excluding vehicles – drops from £100,000 to £25,000.
A UK leading tax specialist, said the changes also meant that any tax rebates would be based on the previous owner's purchase price of the building. In many cases, where the value of the building has gone up, this means that companies planning to buy a commercial property should do it before April – or they stand to lose a sizeable proportion of their potential tax rebate. However, if the value of the property has fallen, they would be advised to wait until after 6 April.
Capital allowances on commercial property have always been a bit of a "dirty secret" since being introduced in the UK after the second world war. The government had considered getting rid of them altogether, but agreed to the new rules after industry lobbying, amid fears that companies might relocate to other places with capital allowances, such as the US, France, Germany or eastern Europe.