When the government introduced the Structure and Building Allowances (SBAs) rules they created a simplification for expenditure incurred on existing qualifying buildings to make compliance and claiming easier but in doing so created an anomaly in the Allowances Statements needed to make the claims.
As part of Finance Act 2021, a minor amendment was made to the existing rules to correct the position and further details are below.
What are SBAs?
SBAs are a capital allowance available for the cost of constructing, renovating, converting or acquiring non-residential structures and buildings. When SBAs were first introduced from 29 October 2018, the allowances were given at 2% per annum of qualifying expenditure on a straight-line basis. This rate was increased to 3% per annum with effect from April 2020. The period over which SBAs are available to be claimed is known as the allowance period.
What was the anomaly?
A business must hold an ‘Allowance Statement’ to claim SBAs, which includes certain details such as the date the asset is first brought into non-residential use. This is normally the date the SBAs allowance period of 33 and 1/3 years commences.
However, where qualifying expenditure is incurred (or treated as incurred under the simplification rules contained within subsection 270BB(3) CAA 2001) after the asset is brought into non-residential use, the allowance period starts on that later date. There was no requirement to record this critical information on the Allowances Statement which could make later claims invalid.
As part of Finance Act 2001, new paragraph 270IA(4)(d) adds an additional requirement to record this later date on the allowance statement where relevant to ensure that the correct amount of SBAs may be claimed over the allowance period. The minor amendment to paragraph 270IA(4)(b) ensures consistency with the new paragraph.
What was the simplification?
Where construction, renovations, conversions or repairs are carried out after a building has been brought into qualifying use and qualifying expenditure is incurred on those works on more than one day, a new claim may be made for a 33 1/3 year period commencing with each of those days.
To reduce the burden of calculating and administering several claims for the same building, an allowance may be claimed instead as though expenditure was incurred on one of the following (whether or not those days fall in the same chargeable period):
the latest of those days on which expenditure was incurred
the first day of the chargeable period following the latest of those days
the first day of the chargeable period following the day on which expenditure was incurred.
This can be particularly helpful where there are multiple phases of construction or items of expenditure that occur or are brought into use on different dates in a chargeable period.
The trade off in using the simplification rules is one of timing and further details with examples can be found in HM Revenue & Customs Manuals CA93450.
Although businesses are not required to submit copies of Allowances Statement to HM Revenue & Customs (HMRC), HMRC can request to see a copy to confirm compliance and if you ever sell the building, or grant a major interest, the recipient will need a copy to make any SBA claims.
If you would like further details on this or any aspect of the SBA regime, please do not hesitate to get in touch.