February 2024
Capital Allowances Update
Author: Matt Jeffery, Managing Director
January’s for tax professionals are always the most challenging month of the year – and January 2024 was no exception!
The 31 January 2024 is the deadline to amend personal self-assessment tax returns for 2021/22. By making a claim for capital allowances on expenditure incurred up to 5 April 2022, significant cash benefits were obtained for our clients. In fact, we helped many of our clients completely wipe out the tax they owed in January, as well as obtain a cash refund from HMRC for overpaid tax.
As you can imagine, we had lots of happy clients! In total, Zeal assist 93 different clients to unlock over £8m in unclaimed capital allowances. This will result in cash tax savings for our clients of over £1.6m! Below is a summary of some of the cases we worked on:
Capital Allowances for Holiday Lets . . . and lots of them!
Zeal specialise in providing holiday let tax advice and are the chosen tax partner for Sykes Holiday Cottages and their sister brands. There are a range of tax benefits for holiday letting (or serviced accommodation as it commonly known), none more prominent than the ability to claim capital allowances. This is a significant benefit over traditional long terms lets as the capital costs of acquisition, refurbishment and fit-out of these properties, qualify for capital allowances tax relief. Being able to claim tax relief on the capital invested significantly increases the net return on a short-term let.
Last month Zeal assisted 43 holiday let owners, with over 100 combined properties, unlock over £3.5m of expenditure qualifying for capital allowances. This will save over £700,000 in income or corporation tax for owners.
Claiming capital allowances on the purchase of buildings used for short-term furnished lettings are the most commonly underclaimed tax relief. This is mainly due to the need for surveyors and capital allowances specialists, but also the lack of awareness by property owners and their accountants.
Below are some examples of the results we achieved on the purchases of ex-residential properties that qualified as Furnished Holiday Lets (FHLs):
CASE 1
Purchase date: 2023 Purchase price = £770,000 CA’s identified = £180,451 Tax saved = £81,203
Our client purchased an apartment in Cornwall for holiday letting, to add to their existing portfolio. The capital allowances eliminated the tax payment due in January 2024 of £33,648. In addition, no tax will be paid on holiday let profits until the capital allowances are used up.
CASE 2
Purchase date: 2020 Purchase price = £189,125 CA’s identified = £34,428 Tax saved = £7,709 Refund = £4,235
Our client purchased a two bedroom terraced house in Banbury and let it as serviced accommodation. As it met the FHL tax criteria, the capital allowances could be claimed on part of the purchase price. As the claim was made before 31 January 2024, we were able to reclaim tax paid for 2022 & 2023 of £4,235, plus secure additional tax savings that can be used to mitigate their tax liability in future years.
Construction of properties for holiday letting in Cornwall
Capital allowances are often underclaimed or not claimed at all on the construction, conversion or refurbishment of buildings used for short-term letting. Zeal had some great results on some interesting projects last month.
Our client, a builder, had constructed 6 terraced houses in Bude, Cornwall with the intention to sell them on. Shortly after completion, 3 were sold and 1 of them was let through Air B&B by the new owner. Seeing the potential, our client decided to retain the final 3 properties and let them as holiday accommodation.
Zeal’s technical team worked through the site plans and cost schedules available to calculate the value of the capital allowances on the 3 retained properties. In doing so, we had to recreate the detailed build costs for the whole site development and mark it back to the costs incurred by the development company. Although the claim made by the clients company that now owns the holiday let properties was restricted to the developers costs (not the transfer value unfortunately), a value cash injection was received.
Total Capital Allowances identified: £84,406
Corporation tax refund: £16,113
We also helped the owners of a large holiday let in Anglesey to identify the unclaimed capital allowances on the £827,399 build costs incurred between 2015 and 2020. This was another fantastic result!
Allowances Identified: £230,112
Tax Saved: £92,050
Cash Refund: £14,806
Conversion and refurbishment of properties for holiday letting in the Scottish Highlands
Many holiday let owners spend significant amounts to refurbish properties or convert outbuildings to holiday lets. This expenditure is often unclaimed, usually because it was spent before the property qualified as a FHL, or because they just didn’t know they could claim. Lack of detailed records can also be an issue for accountants, but not for Zeal!
One client we helped last month had refurbished a property for holiday letting and also converted the barn on site for holiday letting. Fortunately, the client still had detailed records of the contractors costs. Zeal prepared two reports, one for each project.
In total, our client had spent £325,695 on the works and Zeal were able to identify that £74,793 of those costs qualified for capital allowances.
Cash Tax Refund: £2,978
Tax Saved In January: £2,996
Future Tax Savings: £11,145
Care Homes . . . Yes more care homes!
After completing a huge capital allowances review for one of the major UK care providers at the end of 2023, we had a great result for the owners of a small care business in South Wales.
The client was referred to us by their accountant who had actually read our previous newsletter about the claims we completed on care facilities for children. He said it was perfect timing as his client had been complaining earlier that day about the size of his tax bill (not rare!). His client owned two large homes used to support children with learning difficulties. Although the business was run through a limited company the trading properties were owned personally by the directors and rented to the company.
By making the claims in amended 2021/22 & 2022/23 tax returns by 31 January 2024, we completely eliminated the clients tax bill AND got them a cash refund! Of the £1.2m total purchase costs for the properties, Zeal identified £360,418 in qualifying expenditure.
Cash Tax Refund: £14,552
Tax Saved In January: £27,592
Future Tax Savings: £53,108
A brief summary of other clients we have helped this month….
Purchase of a Cattery in Darwen
Purchase date: 2012 Purchase price = £222,200 CA’s identified = £56,552 Tax saved = £16,400 Tax refund = £4,057
Purchase of a Hotel in Midlands
Purchase date: 2007 Purchase price = £717,600 CA’s identified = £181,571 Tax saved = £53,555 Tax refund = £10,579
Purchase of a Nursery in Oxford
Date: 2013 Purchase price = £889,200 CA’s identified = £194,862 Tax saved = £77,945 Tax refund = £22,579
(higher rate taxpayer)
Specialist Tax Advice Update
Stamp Duty Land Tax Refunds
If your clients have purchased a property in the last 4 years, there are occasions where Stamp Duty Land Tax (SDLT) or equivalent will have been overpaid. This may include the purchase of a residence with multiple outbuildings or grazing land, a residential, commercial or mixed use investment property or perhaps transferred property to a limited company, family or pension funds.
Property conveyancers and solicitors are unable to provide tax advice on transactions and often overlook opportunities to reduce or eliminate SDLT on property purchases.
SDLT is a complicated area of legislation that contains over 40 different available tax reliefs. Too much reliance is placed on HMRC’s tax calculator, which is overly simplified and doesn’t consider all relief’s that may be claimed.
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
HMRC lose FTT decision on R&D careless penalties.
With HMRC’s crack down on R&D claims, they have focused on issuing careless penalties if claims are not 100% approved. Whilst any adjustment to a claim means that penalties should be considered historically, HMRC would not issue penalties unless they had concerns around a purposeful error or fraud.
In recent years, HMRC have cited reasons such the company not speaking with them before the claim is submitted (despite the fact HMRC would not give case specific advice unless using the Advance Assurance process), or the advisor reaching out to the claimant company instead of the company reaching out to an advisor.
In this case, H & H Contract Scaffolding Ltd vs HMRC (TC 09082.pdf (tribunals.gov.uk)) the judge found that HMRC were wrong to claim the inaccuracy was careless just because the claim was not approved. Whilst we don’t yet know if HMRC will appeal this decision, it will be interesting to see if HMRC adjusts its current penalty approach with fully or partially rejected R&D claims. The judgement focused on the innocence of the company re penalties partially due to the involvement of an advisor. Will this lead to HMRC being more inclined to raise penalties on the agent? If penalties are focused on the agent rather than the claimant company, this may lead to conflict between client and advisor where a client may wish to ‘give up’ or ‘settle’ to bring an enquiry to an end which could leave the advisor at risk of penalties if 100% of the claim isn’t approved. Leading to the advisor wanting to continue to defend the claim if they strongly disagree with HMRCs decision.
It’s important to remember that just because HMRC reject a claim, doesn’t mean they’re correct. Recently I’ve supported a case whereby 100% of the activity was rejected during the enquiry, at appeal and at independent review – it was then approved during an ADR.
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.
You may also like to read
Newsletter: Talking Tax Issue 22 (October 2023)
Newsletter: Talking Tax Issue 23 & 24 (December 2023)
