Zeal Logo

< Back to Latest News Studies Newsletter: Talking Tax Issue 27 (March 2024)

March 2024

Capital Allowances Update

Author: Matt Jeffery, Managing Director

Following on from a busy January, Zeal assisted another 28 different clients in February to unlock over £2.2 million pounds in unclaimed capital allowances. This will result in cash tax savings for our clients of over £440k

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

Fit Out Of A New Luxury Dental Practice

Zeal were referred a client from their accountant to help them identify the capital allowances available on the costs incurred to refurbish and fit-out a large industrial style unit, to a luxury dental care facility.

The client incurred over £800,000 on the fit-out costs, which had been treated as non-qualifying for tax relief. The main reason for this was that the accountant did not receive any detailed breakdowns of the costs incurred, they just received stage payments from the contractor. Although the works were completed a couple of years ago, Zeal were able to obtain the contract sum analysis and variations schedule from the contractor. These documents provided the extra detail required for a capital allowances claim. 

Following an extensive review of the cost schedules and a site survey of the property, Zeal were able to identify £415,414 of expenditure qualifying for plant & machinery capital allowances. Taking into account the benefit of the super deduction, the total corporation tax savings amounted to in excess of £118,000. The balance of the costs, with exception of some legal fees, qualified for the Structures & Buildings Allowances (SBAs). This will result in additional corporation tax savings of £2,800 a year, during their period of ownership.  

Accountancy Firm Offices

For the second time in as many months, we have helped an accountancy practice to claim capital allowances on their offices. In December, we helped a large accountancy practice identify over £38,000 in capital allowances tax relief on their office purchase (a claim they were not aware they could have made!). Last month, we helped a small accountancy practice in Yorkshire claim capital allowances on their new offices. The city centre office building was acquired from a pension fund for £180,000.  Zeal was able to identify that £36,786 of the £180,000 purchase price qualified for capital allowances.  This will reduce the company’s next corporation tax payment by at least £6,989.

Hotel – Purchase of Staff Accommodation

A large hotel in Cornwall acquired 3 residential properties over the past 12 months, to use as accommodation for staff.  As the hotel is a trading business and the business purchased the properties for the purpose of their trade, the tax legislation that prevents capital allowances claims on dwellings (residential houses) is not applicable.

In total, the Hotel spent just over £600,000 to acquire the 3 properties. Following site surveys and drafting of the capital allowances valuation reports, Zeal identified that £128,000 qualified for capital allowances.  As a result, our client will be able to reduce corporation tax payable this year by £32,000!

Dog & Cat Boarding Kennels

Our client purchased a new residential house in 2022, and built kennels on the land. Following a review by our capital allowances team, we identified £69,972 of the original property purchase cost qualified for capital allowances. 

As the client was in their first year of trading when they made the claim (we amended last years tax return), they could claim all the tax relief and increase the tax losses they accumulated in their first year. They were told by their accountant that the losses would be used against business profits in the future. However, the client had previously had a six figure salary and had paid tax at 45%. As losses made by a sole trader (or partnership business) in the first years of trading can be offset against any tax paid in the last 3 years, our client was able to claim as cash repayment in excess of £36,000 (over £25,000 related to the capital allowances refund). A fantastic result! 

Specialist Tax Advice Update

Spring Budget 2024 – Abolishment of Furnished Holiday Let Tax Regime

The Spring Budget 2024 announced the abolishment of the special tax regime for short-term accommodation owners (Furnished Holiday Lets or FHL’s). This is a blow for owners of qualifying FHL’s, who are able to take advantage of special tax rules, for what has always been regarded as a hybrid trade/property business.

At this stage, there is very little information available beyond the government confirming that:

From 6 April 2025, short-term and long-term lets will be treated the same for tax purposes. Individuals with FHL and non-FHL properties will no longer need to calculate and report income separately”.

The news has taken most people in the industry and certainly tax advisors by surprise, and although there is very little information available and still many questions to be answered, here is what we do know. . .

Stamp Duty Land Tax (or equivalent)

Our Stamp Duty team had some great results last month for our clients. Below are some details of two interesting cases:

Purchase of Manor House

Our client was facing a Land Transaction Tax bill (SDLT equivalent in Wales) of over £220,000 to acquire a residential property. A cost that would be prohibitive to making the deal. Although the plan is to convert the property to a wedding venue (commercial use), this has no bearing when calculating the LTT payable. The purchase would be treated as the acquisition of a dwelling and subject to the LTT surcharge of 4% in Wales.

Luckily, the clients solicitor referred them to Zeal for help. Zeal visited the site with the prospective buyer and the sales agent.  This enabled Zeal to confirm that there were at least 3 separate dwellings on site (holiday cottage and housekeepers lodge), offices, stables and significant land.  It was later established that the land had grazing rights. 

Taking all of the above into account and making use of statutory LTT exemptions and relief’s, the LTT payable was reduced to only £39,000! A great result for our client.

Purchase of a Dwelling From Probate

A client was acquiring a residential dwelling from the personal representatives of a deceased estate. Our client’s plan was to purchase the property for a quick profit (a flip!). By meeting all the rules of the LTT legislation, our client was able to be exempt from LTT on the transaction and save over £17,000.

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

FTT Update

It has been over three months since both of the lead cases were heard on subcontracted and subsidised R&D were heard however no judgements have been issued yet. Zeal will provide an update when one is available.

New Merged Scheme

There will be no delay (despite calls for one from many bodies), to the new merged scheme that will apply to accounting periods starting after 1 April 2024. This new scheme will apply to all businesses not under the intensive scheme (R&D expenditure greater than 30% of total company expenditure) and will provide a net benefit of up to 16.2% of the qualifying expenditure – a decrease for SMEs but an increase for those previously claiming under RDEC.

In addition, receipt of a subsidy/grant will not preclude you from being able to claim (despite earlier drafts including this restriction) and for work done under a contract, it will be the party who knew or expected there to be R&D needed to complete the task that would be able to claim – as has been argued should be the case the recent FTT hearings.

Subject to a few short periods, it will be well over a year until claims under this scheme are submitted, but with the increased expectation on contemporaneous evidence, all companies looking at making claims should re-evaluate how they track and monitor their activity and in turn prepare their supporting evidence.

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