Capital Allowances case study – The best case when capital projects span several years
A frequent misconception is that capital allowance cannot be claimed until a development is finished and the asset is brought into use. However, for capital projects that span several years businesses are entitled to claim on the expenditure as they go along, so long as the property will eventually be a commercial property used for the purposes of the business upon completion.
Furthermore, waiting until completion can mean delaying the tax relief available on the property, and for projects lasting more than 2 years, missing the opportunity to claim time sensitive enhanced allowances like the Annual Investment Allowance, Super Deductions or Full Expensing. In lieu of these first year allowances, it can take 8-20 years for all the value of the allowances identified to arise.
Case Study - Distribution Centre Extension
A great example of this can be shown by this recent YesTax case study.
A large retailer was developing a significant extension to their distribution centre. The business was spending in the region of £4.5m over 3 years.
Getting YesTax on board early on had several benefits for the business’s capital allowance claim:
- Entitlement due diligence; up front advice about structuring the capital project to ensure no capital allowances entitlement was lost through the ownership structure.
- Enhanced access to information; YesTax were able to project manage the claim and liaise directly with a number of suppliers together with the main contractor to obtain highly detailed information ensuring no allowances were missed.
- Interim reports; the first of which identified £430k of qualifying expenditure, equivalent to £100k of tax relief arising from time sensitive first year allowances.
Further annual reports brought the total allowances identified to £1.3m, equivalent to total tax savings of c.£300k. In addition the report also identified £3.2m of Structures & Buildings Allowances, giving rise to a further £750k or relief over 33 years.
The capital allowances exercise allowed the business to maximise its tax relief, and receive the benefit sooner than it otherwise would have, assisting with the cash flow of the capital project.
No matter the nature of your capital project, don’t miss out on allowances your business is entitled to claim, and get in touch for a free capital allowances consultation today with cal@yes.tax
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