Accountants undoubtedly understand the tax principles of capital allowances.
However, they encounter difficulties when it comes to practical application of those principles in relation to commercial property transactions. This applies to both the sale and acquisition of existing property assets and also consideration of the tax relief available on new construction or refurbishment projects. The problem for accountants is that their clients often expect them to be able to deal with the issue because they perceive it to be only a tax issue. However, it is actually both a tax issue and a property and construction valuation issue and unless the accountant can draw on a combination of these skills in-house, they will not maximise their client’s position.
Sales & Acquisitions of a Second Hand Property
Accountants are often not involved in the sale or acquisition process and only learn that their client has bought or sold something when they come to prepare the tax computation. However, all the issues which affect the value of capital allowances are encountered during the transaction. It is imperative therefore that these issues are addressed as the transaction proceeds.
If it can be established that a claim for capital allowances is possible on the acquisition of a property, to arrive at the value of those capital allowances, a “just and reasonable apportionment” of the purchase price may be required. This requires a valuation of the items of plant and machinery in the building, the reconstruction cost estimate of the remainder of the building fabric and a valuation of the land on which that particular building sits. All of these are property and land valuation issues and the accountant is simply not equipped to deal with them.
Capital Allowances on New Build and Refurbishment Properties
Quite a different exercise and set of skills is required to ascertain the items qualifying for capital allowances on a new build or refurbishment project. A thorough understanding of how properties are constructed and procured together with a detailed working knowledge of how construction cost information is presented is necessary. But this alone is not enough. One must also fully understand the capital allowances legislation and case law to achieve optimum results.
How can Capitus help?
Capitus offers a range of services aimed at assisting accountants to better serve their clients when considering capital allowances. These include answering and interpreting pre-contract enquiries on acquisitions and sales, preparing “just and reasonable apportionments”, analysing construction cost information to maximise all available tax reliefs and negotiating and supporting claims for capital allowances with HMRC, if required.
One of our key services for accountants is the analysis of historically incurred expenditure. We come across so many instances where taxpayers have not claimed their full entitlement to capital allowances for the expenditure incurred on historically held property. There is no time limit on how far back they can go to identify and claim that expenditure in recent open periods. This can result in repayments of tax and mitigate future liabilities. This is a real added value service and one which we would encourage accountants to undertake through Capitus on behalf of their clients.