Maximising your cashflow with capital allowances tax refunds

In the current uncertain economic environment, one of the easiest ways to improve your cashflow is to recover taxes already paid. Claiming your entitlement to capital allowances is one way of doing this.

Capital allowances offer a cashflow boost without the prospect of having to repay anything in future as they can be used to give either a tax refund now or offset each year - so you can continue to save tax going forwards.

What are capital allowances?

Capital allowances are a form of tax relief that you can claim when you buy assets that you keep within your business, known as "plant and machinery".

The relief is designed to allow for the depreciation in the value of an asset used in the business, where essentially a percentage of the cost of the asset is deducted from the business profits before tax is calculated. Assets that qualify include:

• equipment
• machinery
• business vehicles
• certain integral features of a building i.e. air conditioning systems, heating systems etc.

The allowances typically range from 6% - 18% per annum depending on the asset type, but each business is also entitled to an "annual investment allowance" (AIA). The AIA allows 100% of the cost of assets to be written off against company profits in the year of purchase, where purchases do not exceed the AIA limits in place.

The Government is keen to encourage investment and, as such, increased the AIA to give a first year deduction for up to £1 million of qualifying capital expenditure incurred in the period 1 January 2019 to 31 December 2020 - this is worth nearly £0.2 million at the current corporation tax rate.

From 1 January 2021, the AIA is expected to drop to £200,000 maximum allowance - but this may well be reconsidered in light of the current economic climate.

Investment in commercial property

Investments in commercial property that has been acquired or improved with renovation, refurbishment and fit out works in the past several years offer the most scope for immediate savings.

On the basis that the assets are still owned, a review of all historic land and buildings or leasehold improvement expenditure will highlight relevant projects.

It is possible to amend the prior year’s tax return now to include additional capital allowances - and this will often result in a substantial repayment of overpaid corporation or income taxes. 

Where a specialist review hasn't been done in the past, it is not uncommon for only the easily identifiable furnishings and equipment items within a property to have be claimed historically. With research, the high value Integral Features, such as heating, comfort cooling, lighting, lifts, electrical systems and water services are often still available to be claimed.

Case Studies

The case studies below show the tax savings that would have been missed, if a claim had not been done:

Recent example: Purchase of Commercial Unit

• Property acquired from developer for £460,000
• Allowances identified: £68,000
• Cash refund immediately or over time: £13,000 (corporation tax - i.e. for limited companies) or £27,000 (income tax - i.e. for sole traders and partnerships)

Recent example: Refurbishment of Offices

• Improvement works to offices totalling £1.8 million
• Allowances identified: £1 million
• Cash refund immediately or over time: £0.2 million

The Claim Process

The process of claiming capital allowances is quite straightforward and will not take a lot of your time:

• Initially an estimate is presented in a proposal letter
• A detailed report is then prepared by our specialist taxation surveyor to support the claim and segregate the qualifying and non-qualifying expenditure
• We'll arrange to visit the property to undertake a capital allowances survey

We are here to help...

If you have any questions or would like a review of your recent and historic expenditure we are here to help in any way we can - please get in touch with us on 0121 693 5000 (Solihull Office) or 01527 833124 (Bromsgrove Office).

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