Cash for Capital Allowances
Capital allowances provide excellent cash generating opportunities and recent claims have been generating substantial cash repayments for YesTax clients.
Case Study 1 – Income Tax Payer @ 45% Tax
YesTax recently engaged with a dentist paying income tax at 45%. The client carried out a refurbishment of his dental practice in 2015 and incurred £500,000 on assets qualifying for plant and machinery allowances - but never made a capital allowances claim. As the client still owns the assets, he was entitled to make a claim in a tax return that was still open for amendment. His total tax saved over time will equate to £225k (£500k x 45%). By amending a prior year tax return the client will be able to obtain a tax rebate from HMRC equal to the allowances claimed in that period. In future periods, the client will be able to reduce the tax he pays to HMRC.
Case Study 2 – Corporation Taxpayer @ 19%
A high street retailer spent £1m fitting out an existing store. The expenditure comprised a combination of fixtures, fittings and lighting but no claim for capital allowances was made at the time. By not claiming, the retailer was missing out on a total tax saving of £190k (£1m x 19%) over time. The assets were still owned, allowing the company to amend an open tax return and claim a significant cash refund.
Case Study 3 – High Street Retailer Installing ECA qualifying Lights
Enhanced Capital Allowances (ECAs) are available on energy efficient assets that meet designated performance criteria or are approved by The Carbon Trust. Relief is given at 100% in the first year.
Where claiming ECAs results in an increased loss, a company may elect for the 100% deduction to be surrendered for a first-year tax credit payment. The tax credit payment will equate to 19% of the amount spent on ECA eligible equipment.
For example, a high street retailer incurring £1m on ECA eligible lighting can surrender the 100% tax relief and instead claim a payable tax credit from HMRC for £190k (£1m x 19%).
It is worth noting that the first-year tax credit payment is capped at the company’s PAYE and NIC liabilities for the relevant chargeable period or (if higher) £250k. The ECA credit is only available to incorporated entities and has been withdrawn for expenditure incurred post April 2020.
If you are an accountant and you would like to discuss a client case or you are a taxpayer with a commercial building and have not taken specialist capital allowances advice, please contact firstname.lastname@example.org