Updated: Apr 8, 2021
Following last month’s budget announcement on the Capital Allowances Super Deduction, we have received a response from the Capital Allowances Technical team at HM Revenue & Customs (“HMRC”) confirming that claims for certain landlord areas within commercial properties should be eligible for the accelerated First Year Allowances (FYAs).
Common Areas and Management Suites
Although HMRC has committed to publishing full technical guidance following its initial factsheet it is not in a position to give an indication of timescales which means we could still be waiting many weeks for full details despite new construction contracts being eligible now.
Since rental agreements are often calculated and paid to a landlord for maintaining the access corridors, car parks, staff welfare, entrance lobby/receptions etc. some of which will be available for the exclusive use of the tenant(s) and some shared with customers/clients; it is not immediately obvious what the legislative basis for a landlord FYA claim is.
Indeed, HMRC and the Valuation Office Agency are notorious for adopting a very broad interpretation of the general leasing exclusion so we wrote to HMRC for clarification.
The type of expenditure which we understand HMRC will accept includes “items in the common parts of buildings that are not themselves leased”. This is expected to include plant and machinery such as dedicated lifts, escalators, reception desks and security access systems in common areas.
Claims for shared plant that is located in a central plant room for the benefit of both leased and non-leased areas (e.g. cooling, power and heating systems) may be allowable on an apportionment basis and such claims will depend on the specific facts of each case and therefore, should be approached with care and caution. Dedicated plant or machinery within, or to serve, leased areas will remain excluded.
Assets Leased with a Service
There is a distinction between plant and machinery for leasing, which is excluded by general exclusion 6 [section 46(2) CAA 2001], and plant and machinery for the provision of a service, which could qualify for the super-deduction. This carve out is traditionally interpreted narrowly and there is guidance available in HMRC's capital allowances manual at CA23115.
As the guidance has not changed since Tax Bulleting 66 (September 2003), HMRC have also confirmed to us that activities, such as ‘tied premises’, guest houses, caravans, franchise hotels etc. will still be caught by the general exclusion and be ineligible for FYAs (subject to the landlord areas mentioned above).
New legislation always brings questions, not least the new disposal value calculations we have here, and we are in continued talks with HMRC and other interested parties to make sure claims are optimised and robust – expect more details to follow!
If you have any questions in the meantime, please do not hesitate to get in touch.