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< Back to Latest News Studies Newsletter: Talking Tax Issue 23 & 24 (December 2023)

December 2023

Capital Allowances Update

Author: Matt Jeffery, Managing Director

Over the past 2 months, our capital allowances team assisted 59 different clients to identify claims for capital allowances, unlocking over £7.9m in unclaimed tax relief.   This will result in cash tax savings for our clients of at least £1.6m!

Below is a summary of some of the cases we worked on:

Capital Allowances Review – Residential Care Homes

Zeal have helped care businesses all over the UK unlock significant tax savings from their investment in their trading properties. This month, we assisted a provider of residential care services, identifying over £1.2m in unclaimed capital allowances. This will generate total corporation tax savings of up to £300,000!

Capital Allowances on Holiday Parks

Zeal have also completed a lot of successful claims over the years for holiday and residential park owners, helping them unlock tax savings on the purchase and development of their parks. Last month we worked with two different park owners to identify unclaimed capital allowances on their sites. 

One of the holiday parks, located in Aberdeen, was purchased in 2009 for £754,000. Zeal uncovered that £172,495 of the £745,000 purchased price qualified for capital allowances. By taking advantage of this unclaimed tax relief, at least £50,000 in Income Tax and National Insurance contributions will be generated for the owners. 

The second park, situated in St Ives, Cornwall, was purchased in 2010 for £1,490,000.  Zeal identified that £328,310 of the £1,490,000 purchase price qualified for capital allowances. This will generate at least £137,000 in Income Tax and National Insurance contributions for the owners. The owners also received an immediate cash repayment from HMRC of over £30,000 thanks to Zeal!

In both cases, the qualifying expenditure related to the underground services to the caravans (i.e. electric, water & sewage), fixtures within buildings (e.g. sanitaryware, heating & lighting in the shower/toilet blocks) and certain infrastructure on site.  

Purchase of refurbished Office building    

An accountant referred one of their clients to Zeal who had purchased an office building in 2022. Due to the changes in fixtures legislation in 2014, purchases of commercial property after this date are unlikely to yield significant capital allowances, particularly if the purchase has completed. In many cases, the capital allowances would rest with the Vendor. For a Purchaser to benefit from the capital allowances, the Vendor would need to pass on the benefit to them.

There are, however, a number of scenarios where the purchaser of a commercial building can claim capital allowances, without any agreement with the Vendor. Typical examples are purchases from Pension Funds, Local Councils, NHS, Charities etc. These entities are not subject to UK taxation charges and so capital allowances don’t apply. 

Another scenario that we see from time to time, is the purchase of commercial property from a developer. This could be the purchase of a newly constructed property or one that has been refurbished. If the Vendor was a property developer and held the property as trading stock, rather than an investment asset, then no claim for capital allowances can be made by the Vendor. A Purchaser can make an unrestricted claim based on their purchase price. This was the case for our client.

The office building was purchased for £400,000 in 2022. It was previously derelict, and the Vendor did a complete refurbishment of the property.  As the Vendor held the property as stock, our client could make an unrestricted capital allowances claim.  Zeal identified that £119,940 of the £400,000 (plus SDLT & legal fees) purchase price qualified for capital allowances. As the claim was made in the year ended 31 March 2022 tax return, corporation tax due for 2022 was reduced by £22,789. As the client had already paid the corporation tax in December 2022, a refund of the overpaid amount (plus credit interest accrued) was repaid to our client.

A brief summary of other clients we have helped this month….

Purchase of a Guest House

Purchase date: 2005
Purchase price = £396,550
CA’s identified = £83,935
Tax saved = £24,329

Purchase of Children’s Day Nursery

Purchase date: 2004
Purchase price = £201,997
CA’s identified = £42,979
Tax saved = £12,464

Cowshed conversion to Holiday Let

Date: 2022
Cost = £119,541
CA’s identified = £43,612
Tax saved = £17,445

(higher rate taxpayer)

Specialist Tax Advice Update

Good news as full-expensing made permanent in Chancellors Autumn Statement

As part of the Autumn Statement delivered to Parliament on Wednesday 22 November 2023, the Chancellor of the Exchequer confirmed that full expensing for capital allowances would be made permanent, in an attempt to continue to encourage business investment in plant and machinery. It was also confirmed that a technical consultation will be launched on wider changes to the capital allowances legislation with a view to simplifying the system. 

‘Full-expensing’ was originally introduced from 1 April 2023 with plans to run the scheme until 31 March 2026. This tax incentive allows limited companies to write off the full cost of qualifying assets in the year of purchase as opposed to receiving the tax relief over several years.  

In short, it accelerates the timing of the tax relief received. Read our blog for more information and Zeal’s thought on the changes.

For help with Embedded Capital Allowances or Specialist Tax Advisory, please contact Zeal on hello@gozeal.co.uk or 01633 287898.

R&D Tax Credits Update

Author: Adam Spriggs, R&D Tax Director

Tribunal Cases

Over the past month, the two lead cases on HMRCs interpretation of subcontracted and subsidised R&D have been heard, the second of which was supported by myself (R&D Tax Director at Zeal).

These two cases have challenged HMRCs interpretation that work done under contract, whether R&D was known at the time of contract being irrelevant, would be caught by both pieces of legislation. HMRC had already lost on their subsidised interpretation in the Quinn case in 2021 however chose not to either appeal or accept their decision – a point brought up by the judge in the latter of the two lead cases. Decisions are due at some point in 2024 Q1.

With the move to a merged scheme next year this is likely to have minimal long term impact, however with over 10 other cases stayed behind these two, as well as other companies who may have accepted HMRCs interpretation or still challenging it, the outcomes will provide a lot more clarity on an issue that has been prominent over the past few years.

A Single Scheme

In last months Autumn Statement, it was confirmed that for accounting periods beginning after 1 April 2024 companies will claim R&D Tax Relief under a new merged scheme. The merged scheme will follow the principles of the current RDEC scheme with a 20% rate, all businesses will see aa circa. 15% benefit from their R&D claims – a further decrease from the old and revised SME rates.

A welcomed change from the initial drafting is that the new scheme will not follow the current subsidised rules and so those in receipts of grants for a project will still be able to claim. Additionally the subcontracted rules will, curiously, follow the principles argued by both Appellants in the above ref tribunal cases – the company who has decided to undertake R&D will be the one to claim. Therefore a client who contracts work with no knowledge or care if R&D is used to deliver the end product would not be able to claim. Each case will obviously be decided on its own facts but it is hoped that HMRC will provide sufficient examples of instances that would and wouldn’t meet this to aid claims for work undertaken as a result of a contract.

If you would like to discuss this form or how Zeal can assist any clients you are working with, please contact Adam on adam@gozeal.co.uk.