Talking Tax: June 2023
Author: Matt Jeffery, Managing Director
Last month our capital allowances team assisted 41 different clients to identify claims for capital allowances, unlocking over £3.8m in unclaimed tax relief. This will result in cash tax savings for our clients of at least £760,000!
Below is a summary of some of the cases we worked on:
Capital Allowances Review – Children’s Homes
Zeal carried out a capital allowances review of property purchases and developments by a provider of residential child care services, based in South Wales. Over the past 7 years, the company had incurred around £1.7m to purchase several residential properties for use in their business of providing residential child care. As no capital allowances had ever been claimed on part of the purchase prices paid for the properties, the company was sitting on significant unclaimed tax relief.
Our team completed site surveys of the properties and prepared detailed capital allowances valuation reports. This identified £363,044 of qualifying expenditure related to the embedded fixtures purchased with the buildings (electrical, heating & ventilation systems, kitchens, bathrooms, water pipework etc).
The company had also spent £121,343 to build an extension to one of the properties in 2019. However, the builders did not provide a detailed breakdown of the costs and were unable to provide one now. Fortunately, Zeal’s team of qualified surveying and tax professionals were able to assess the value of qualifying elements within the construction costs. The methodology we use is in a format that has been agreed with the VOA and the District Valuer. Following our work, the client will now get tax relief for the extension costs. This will be a mix of plant & machinery capital allowances and structures & buildings allowances.
In summary, the capital allowances identified will unlock £90,761 of corporation tax savings. An immediate rebate of corporation tax paid of £36,000 was also refunded. It was a great result for the company and provided them with a cash injection to help fund their next property purchase.
Construction of Care Homes
Given the level of investment in buildings and infrastructure, the care industry is one of Zeal’s core sectors.
One of our largest clients, which is based in London, constructed four 90 bedroom care homes during 2022. The modern, high specification facilities ranged from £4m to £8m to build and fit-out.
Zeal’s capital allowances specialists liaised with the contractors during the build stages to collate all the information required to maximise the claim and support the figures in the event of an HMRC enquiry. Once the reports were drafted, we worked with the clients’ accountants to reconcile the reports to the accounts and corporation tax computations.
On average, 39.1% of the expenditure incurred on the construction qualifies for plant & machinery capital allowances, 56.7% as structures & buildings allowances and only 4.2% not attracting any tax relief (e.g. planning and legal fees).
Capital Allowances Review – Commercial Landlord
Zeal achieved an excellent result this month for a company that invests in commercial property. The client was referred to Zeal by a commercial property agent.
The client had purchased over 20 commercial units over the past 9 years. These ranged from large offices, to industrial units or high street stores, like Boots the Chemist.
Zeal carried out an entitlement review of the commercial property acquisitions to identify properties that would qualify for a capital allowances claim on part of the purchase price. This included reviewing the legal documents (contracts & CPSE’s) and the Land Registry ownership records.
In total, we identified 7 properties that qualified for a full or restricted claim. This resulted in £611,000 of the total purchase costs of £5.1m qualifying for capital allowances. As we were able to submit the claims by 31 May 2023, we were able to amend both the 2021 & 2022 corporation tax returns, which resulted in a cash repayment of over £75,000!
Our client was delighted with the result and service they received from Zeal. The agent was also very pleased as they received a handsome referral fee and a lot of goodwill with their client!
A brief summary of other clients we have helped this month….
Purchase of two Industrial Units.
Purchase date: 2022 Purchase price = £944,978 CA’s identified = £86,398 Tax saved = £16,415
Purchase and extension of a holiday let
Date: 2018 – 2020 Total cost = £797,995 CA’s identified = £142,258 Tax saved = £28,511
Dog & Cat boarding/day care facility
Date: 2015 Purchase price = £417,150 CA’s identified = £83,184 Tax saved = £24,123
Limited Companies – No Better Time to Identify Unclaimed Tax Relief
From 1 April 2023, limited companies with profits over £250,000 will pay an additional 6% corporation tax. Companies with profits over £50,000 but less than £250,000 will also pay up to 6% extra corporation tax. In other terms, companies will be giving away up to 6% of their company after 1 April 2023!
Zeal encourage all business owners, their accountants and other professional advisors to review capital expenditure incurred over the years on the purchase, construction, refurbishment or conversion of buildings to mitigate the rise in corporation tax charges.
Tax Advisory – Property Investments
Having a tax efficient structure for holding property investments has always been high on the agenda of property investors and their advisors. The Section 24 restrictions for residential finance charges introduced from April 2017 sparked a rise in landlords seeking to incorporate their Buy-to Let portfolios to a limited company structure. The recent sharp increase in interest rates has resulted in many more landlords revisiting the tax efficiency of their property business.
Zeal have been working with a number of clients to review the options available to them to not only mitigate their income tax liabilities, but also to identify a structure that will provide relief from Inheritance Tax and Capital Gains Tax, which can destroy the legacy they have built during their lifetime.
Zeal property tax consultants provide tailored advice to property investors that are looking at ways of managing current tax charges and minimising exposure to future taxes. We offer a free initial consultation to review your circumstances and discuss the potential options available.
For help with Embedded Capital Allowances or Specialist Tax Advisory, please contact Zeal on hello@gozeal.co.uk or 01633 287898.
You may also like to read
Newsletter: Capital Allowances Update (Issue 1)
Newsletter: R&D Tax Credits Update (Issue 2)