Talking Tax: October 2022
Author: Matt Jeffery, Managing Director
September was another busy month for the capital allowances team. We assisted 27 different clients to identify claims for capital allowances, unlocking over £4.4m in unclaimed tax relief. This will result in cash tax savings for our clients of at least £880,000! Below is a summary of two interesting cases we worked on:
Capital Allowances Review – Sixth Form Boarding School
We had a great result for a client that owns a private sixth form school in Surrey. The family run business was started in the 1970s, following the acquisition of an old school building. Fast forward 50 years and the school now provides boarding accommodation for its students across 8 different sites.
Zeal carried out a capital allowances review of the assets owned by the business to identify any missed claims for capital allowances. Zeal identified entitlement to claim capital allowances on 3 property purchases and a building extension. The properties that qualified were boarding houses that were purchased between 2000 – 2020. These properties briefly comprised of large country houses which were in residential use before acquisition by the school. The capital allowances restriction for dwelling houses was not applicable as the assets are used for the purpose of a trading activity.
In summary, Zeal identified a total of £1,042,816 that qualified for capital allowances. This will result in total income tax & Class 4 NI savings of £490,123. By making the claim in the earliest open LLP tax return (tax year 2020/21), a cash repayment of £277,671 was also received.
Capital Allowances Review – Civil Engineering Company
Zeal was introduced to a large civil engineering company that had incurred capex to build and refurbish commercial investment properties.
Approximately £2.9m had been incurred on the construction of 4 commercial units and the refurbishment of an additional 2 sites. The properties ranged from modern office accommodation to industrial units.
In summary, Zeal identified a total of £1.7m of the £2.8m incurred as qualifying for plant & machinery capital allowances. This will equate to total corporation tax savings of £223,000. A repayment was received for year ended 30 September 2020 of £53,000 and corporation tax due by 31 December 2022 of £42,000 was eliminated.
The company had spent in excess of £10m since 2017 on its properties and had not claimed any capital allowances. However, a re-organisation was carried out in 2019 to transfer the properties from the main trading company to a separate holding company. Unfortunately, capital allowances were not addressed before the transfer and the assets were transferred without any capital allowances elections. As 2 years had passed since the transfer, the capital allowances were lost. It is estimated that tax relief in excess of £400,000 was missed! It is vital that capital allowances are always addressed before sale, purchase or transfer! Using a specialist like Zeal can avoid these unfortunate scenarios.