Capital allowances - new rules from April 2008

Property, fixtures & fittings - don't miss out!

The 2007 Budget introduced significant changes to the Capital Allowances regime. The new system comes into force from 6 April 2008. This fact sheet highlights a key Capital Allowance claim that your business might be missing out on.

Commercial Property

Most taxpayers and accountants are aware of the capital allowances available if an item of plant or a vehicle is purchased. What is often missed though is the availability of allowances when acquiring commercial property.

The amount that is claimable depends on a number of circumstances. The level of equipment within the building is a major factor (i.e. is there a lift or air conditioning?) For a luxury office a claim for allowance can be as high as 40% of the cost!

Professional advice should be taken when considering the purchase or sale of commercial property either for use in your own trade or as an investment. Assuming no prior claim has been made, then one can be made based upon an apportionment of the purchase price of the land and the replacement price of the buildings and the cost of the fixtures and fittings. If however, the matter has not been considered, it may not be too late and claims are possible for buildings acquired many years ago.

The split of the purchase price is an exercise requiring specialist skills. We have good working relationships with organisations that specialise in this field, and we work closely with them to ensure an optimum claim. A detailed report is prepared which is integrated into the relevant tax return. In the unlikely event that the claim is challenged, our specialist will negotiate direct with H M Revenue & Customs.

Tax savings can be large; far outweighing the fees involved. There is nothing controversial about making these claims; this is not a tax avoidance scheme.

Changes from 6 April 2008

The 2007 Budget has restricted capital allowances available on plant and machinery. The current system and rates remain in place for the next year, but action is needed now! From 2008/09, there will be two major changes:-

Firstly, the standard rate of writing-down allowance will fall from 25% pa to 20% pa. This means that the tax relief will come through slightly more slowly.

Secondly, the rate of writing-down allowance on certain types of plant will be 10%. You will still get the relief; it will just take longer to come through. The types of plant subject to this 10% rate will be "certain fixtures integral to a building", with details to be the subject of consultation. It is likely that, for example, pubs and nursing homes will qualify mainly for the 20% rate. Unfortunately it is “fixtures integral to a building" for which the specialist services are required.

From information we have at the moment, it would appear that any plant which has already been added to the general pool before April 2008 should at worst qualify at 20% pa, even if it is of a type which in future would qualify at 10%

Consequently, there is every incentive to carry out a capital allowances exercise NOW! This will ensure that allowances are claimed under the current system, and therefore "trapped" before the rates go down.

Contact Prime if you think you may be affected.

For information of users: This material is published for the information of clients. It provides only an overview of the regulations in force at the date of publication, and no action should be taken without consulting the detailed legislation or seeking professional advice. Therefore no responsibility for loss occasioned by any person acting or refraining from action as a result of the material can be accepted by the authors or the firm.

Fact sheet produced May 2007