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Capital Allowances Summary 2022

A round-up of our most popular and topical articles covering capital allowances case law, legislation changes, news and related announcements.

Spring Budget 2023

The Chancellor has announced that the Spring Budget 2023 will take place on Wednesday 15 March. That day the Office of Budget Responsibility (OBR) will release the latest outlook for the economy and public finances.

If you are interested in helping to shape government policy, comment on the effective of existing legislation or make suggestions for new policy interventions the government has also published 'Guidance for submitting Spring Budget 2023 representations to the Treasury'

The preferred submission method is through a 'representations portal' which closes on 1 February 2023.

Capital Allowances Autumn Statement

With no new capital incentives to aide investment and growth, it is a back-to-basics approach to claim optimisation which has become increasingly complex over the years with 'Allowances Statements', 'Fixed Value' and 'Mandatory Pooling Requirements' and the most recent, and relatively short-lived, 'Super Deduction'.

Learn more here.

Revitalise, Adapt and Grow

Our working arrangements and office environments are changing; as is what we expect from the spaces we utilise for developing business ideas and human interaction. Creating great office accommodation costs but perhaps not as much as you think when you factor in the current tax allowances available to most UK tax paying businesses - how would an effective 17.5% cash saving affect your project plans?

The average £250,000 commercial office fit-out contains expenditure that is 79% (£197,500) eligible for plant and machinery allowances (44% for the new 130% Super Deduction and 35% for the 100% Annual Investment Allowance) which can generate a Year 1 tax saving of £43,795 (based on a corporation tax rate of 19%).

Learn more here.

Dealing in Capital Allowances

If you are buying or selling a commercial property the capital allowances position will usually come up during pre-contract enquiries so it makes sense to plan ahead and know what to look out for to avoid an unsuspecting clawback or punitive restriction to nil.

The capital allowances rules for real estate are designed to link taxpayers claims between past and future owners so the UK government is protected from paying out allowances more than once on the same asset. This means if you sell or transfer a commercial property you should expect to be questioned on what you have claimed; and if you want to make a capital allowances claim for any purchases (including from developers and non-tax payers) you should make sure the right questions are being asked and the responses received adequate.

Learn more here.

A test of the function test in a highly regulated and sophisticated asset

Conceptually, eligibility for plant and machinery allowances is straightforward. An asset used in carrying on the trade qualifies as plant: something which is the setting in which the trade is carried on does not qualify.

Anybody who has had to deal with this distinction in practice knows that it is anything but straightforward. Partly, this is because the facts in every case are different, but it is also because the legislation and case law has at times struggled to deal with changes in technology.

As the judge in this appeal (UrencoChemplants ltd and another v HMRC [2022] UKUT 22 (TCC)) put it: the intention of the most recent change in the legislation in 1994 was to draw a line in the sand between buildings and structures on the one hand and plant on the other, but sands shift, not only because issues will arise which were not specifically dealt with at the time the line was drawn but also assets such as those in this appeal were not contemplated at the time.

Learn more here.

Windfarm design, survey and construction management costs

If you are going to construct an offshore windfarm you will need to carry out extensive preliminary studies before you commence construction. How will it affect the landscape? What is the risk of birds flying into the turbines? Are there important archaeological sites within the vicinity? These and many other issues need to be researched, at considerable costs. The question in the case of Gunfleet Sands Ltd and other companies v HMRC [2022] UKFTT 35 (TC) was whether these costs were eligible for capital allowances. The wind turbines and associated equipment clearly qualified. But did the preliminary expenditure? Expenditure on items such as transportation and installation can qualify, so there is no doubt that some items which are not directly plant themselves are eligible. The question here, as so often, was where the borderline should be drawn. Were the studies part of the expenditure on the plant or were they, as HM Revenue & Customs ('HMRC') suggested, too remote to qualify?

Learn more here.

Topical Tax Developments in Property and Related Matters

A short summary of recent topical developments in tax and property with links to guidance and discussion; specifically:

  • Final Guidance Uncertain Tax Treatments

  • ATT warns residential property buyers to beware of possible increase in costs and complexity

  • Office of Tax Simplification Evaluation Papers (Property Income)

  • CIOT response: business rates review technical consultation

  • ATT warns of impact of R&D tax relief plan on small companies

  • Ground-breaking deal to establish two new Green Freeports in Scotland

  • Regulations laid to designate Freeport Tax Sites in East Midlands, Liverpool City Region and Solent Freeports

  • Consultation response: Review of the UK funds regime

Learn more here.

Direct Tax Guide to Site Remediation

Contaminated Land Remediation Relief (LRR) is the UK's primary direct tax incentive for companies involved in brownfield development, land remediation or bringing long term derelict land back into productive use.

Compiling a LRR claim to withstand HMRC scrutiny takes planning and care but the rewards can be significant. For every £100 of qualifying expenditure the company could receive up to £28.50 (£37.50 from April 2023) in return - don't lose out!

Learn more here.

Non-Resident Landlords Taxation Update

Changes to the tax system usually take time to make an impact on behaviour and one such change is the approach to capital allowances claims by Non-Resident Landlords (NRL’s) companies arising from changes in April 2019 and 2020 which brought chargeable gains and then profits into the UK corporation tax rules.

The changes are designed to level the playing field between UK and offshore investors and HMRC's latest guidance for non-resident companies can be found here.

Often seen as a ‘nice to have but not essential’, capital allowances which can be present in most commercial property transactions are now coming under enhanced scrutiny in deals to reduce the tax charge on both gains and profits.

Learn more here.

Top Capital Allowances Opportunities

Whenever we are asked to examine balance sheet additions or the tax treatment of underlying construction invoice arrangements we often come across the same repeated patterns which can lead to missed or substantially under reported claims that can cost businesses many thousands (sometimes millions) of pounds.

Set out below are the most common areas of opportunity in balance sheet and construction project tax analysis: -

Learn more here.

Notification of Uncertain Tax Treatments

HMRC published new draft guidance on 18 January 2022 on the requirements for large businesses to notify 'uncertain tax treatment' from 1 April 2022. The latest guidance provides further clarification and examples of how the requirement is expected to operate in practice.

The policy has been designed to reduce the tax gap by helping HMRC identify more legal interpretation issues at an earlier stage. An initial draft of the technical guidance was published in August 2021, explaining how HMRC will interpret and apply the Uncertain Tax Treatment (UTT) legislation and to help businesses comply with the new legislative requirements. A final version of the UTT guidance is expected by 28 February 2022.

Learn more here.


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