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Businesses are failing to claim tax relief on fittings in commercial properties, experts say, which could save them billions of pounds

Properties from fish and chip shops to the Gherkin in London (front right) could be missing out on capital allowances on fittings, tax experts say. Photograph: Stefan Rousseau/PA

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.

The UK taxation system is over-complicated

The UK taxation system is over-complicated

The UK taxation system is over-complicated, the government says

The “spaghetti bowl” of UK tax law is to be simplified to cut the burden on business and attract foreign investment, George Osborne has said.

The chancellor is setting up an Office for Tax Simplification to streamline the 11,000 page tax code.

He said Britain had “one of the most complex and opaque tax codes in the world”.

And he wanted a “permanent body to push against the forces of complication” and make life easier for firms.

Announcing the new body, Mr Osborne said his “dream” was “that people might actually understand the tax laws with which they were being asked to comply with”.

The new body will initially conduct two reviews – streamlining 400 tax reliefs, allowances and exemptions and simplifying the tax system for small businesses, including a simpler alternative to the controversial IR35 code.

It will advise ministers where the tax system is too complex but it will not look at tax credits, which Mr Osborne said he considered part of the benefits system.


‘Economic boost’

The chairman of the new body will be former Conservative MP and Treasury minister Michael Jack and its director will be John Whiting, formerly of PricewaterhouseCoopers, who is tax director at the Chartered Institute of Taxation. Neither will be paid.

The government says the tax system became a “hindrance” to business under Labour and that by simplifying it and making it more competitive for small firms, it will stimulate economic growth.

In a speech, Treasury minister David Gauke said: “The tax system created by the previous government was overly complex and has made the tax affairs of millions of families and businesses across the UK extremely complicated.

“We need to reduce the complexities in our tax system and the coalition is committed to delivering that goal.

“The Office for Tax Simplification will provide important advice that will help inform us in making the right reforms to the tax system that will help to pave the way to bringing more international business to the UK, which will give our economy the boost it so urgently needs in the years ahead.”

The OTS’s remit covers UK taxes and duties administered by HM Revenue and Customs, but it will not deal with tax credits or taxes administered by other bodies nor will it have any influence on setting tax rates.

In his first Budget last month, George Osborne set out plans to reduce the headline rate of corporation tax by 28% to 24% over four years in an effort to show Britain was “open for business”.

But this will be partly paid for by cuts in capital allowances, which provide tax breaks to firms investing substantially in operational assets such as machinery. Critics say this will penalise small and medium-sized manufacturing firms.

In May the government set up the Office for Budget Responsibility, to provide the government with independent forecasts of UK economic growth and public deficits.

Just another instance of a Government giving with one hand, only to take back with the other!

The government will start to reduce levels of Capital Allowance rates as of April 2012, all Commercial property owners are now urged to make their Capital Allowance claims now in order to fully maximise their tax allowances, and lock in future tax liabilities after April 2012.

Capital Allowances are somewhat of a specialised area, and in order to fully maximise your potential claim you are advised to seek specialised help and advice.

To arrange an informal meeting with one of our Capital Allowance specialists, please call us today on: 01246 293011, alternatively email sales@salmon-business.com

Further help and information may also be found on our web site at www.salmon-business.com

The Tory Manifesto is about to close the Capital Allowances for Embedded Fixtures and Integral Features.

These refunds will be reduced greatly as the tax system is being simplified and complex claims are going to be abolished.

The reference says the Conservatives aim to cut the headline rate of corporation tax to 25p and small company rate to 20p funded by reducing complex tax relief’s and allowances. –see http://www.conservatives.com/Policy/Where_we_stand/Business.aspx second point on their priority list!

The opinion in the accountancy profession and of some financial guru’s is the Tories will attack capital allowances so I would strongly suggest clients act now or they will regret not doing so, this door will be closed in 2 years.

Salmon Tax Adjusters are the most competitive in the market, work on no win no fee basis, and the fee is not payable until the refund is in place – so you really have nothing to lose! Act now and get the Capital Allowances you are legally entitled to!

Whichever government was elected to lead us over the next term, cut backs were expected to hit business hard, and with Capital Allowances being amongst the most valuable methods of reducing property owners’ income tax or corporation tax liabilities. The Conservatives have stated in their manifesto that they are seeking to target this tax advantage.

Don’t miss out on these valuable tax advantages whilst they are still available to you – speak with an adviser today and arrange a FREE site survey NOW

_____________________________________________________________________________________________________________________________________________Contact Contact Salmon Business Group today on 01246 293011
Alternatively, visit us at www.salmon-business.com

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