Where there’s muck, there’s brass!
YES! There is tax relief available for companies incurring clean-up costs and making-good contaminated land.
Land remediation relief (LRR) entitles a company to claim up to 150% tax relief on qualifying expenditure, as a trading expense, in the same year in which the expenditure is incurred. This means that taxable profits are reduced, thus reducing the corporation tax liability of the company.
The relief is available on the following remediation costs:
- the removal of asbestos from buildings,
- breaking-out buried structures,
- the treatment of harmful organisms, and naturally occurring contaminants such as Japanese Knotweed, radon and arsenic.
Relief can be available on developments, regeneration projects, fit-outs and refurbishments
WHO can claim?
Land Remediation Relief is a corporation tax relief, and is available where companies acquire land in a contaminated or derelict state.
It is not available to individuals or partnerships. However, a company that is a member of a partnership can make an election in respect of its share of the partnership’s land remediation expenditure, provided it satisfies the relevant conditions.
It is important to note that currently LRR applies only to UK companies. Offshore companies are currently denied this type of relief. However, this is set to change when offshore companies become subject to Corporation tax in April 2020.
What are the conditions?
The relevant conditions are that:
- the land in the UK is, or was, acquired by the company for the purposes of its trade or property business, and
- at the time the company acquired the land, all, or part of the land was in a contaminated or derelict state, and
- the company incurs revenue or capital expenditure on qualifying land remediation activity in respect of the land
What are the exclusions?
A claim for land remediation relief is not possible if the company:
- has already claimed capital allowances on the same expenditure; or
- is the original polluter
Please also note that the loss that can be exchanged for the tax credit must be no more than 50% of the qualifying land remediation expenditure, for any particular accounting period. In addition, if the site was purchased from a connected company (who was the original polluter) then no claim is available.
What is contaminated land?
Land is in a contaminated state only if there is something in, on, or under the land which causes relevant harm, or there is a serious possibility that relevant harm will be caused. Relevant harm is defined as meaning:
- death of living organisms or significant injury or damage to living organisms,
- significant pollution of controlled waters,
- a significant adverse impact on the ecosystem, or
- structural or other significant damage to buildings or other structures or interference with buildings or other structures that significantly compromises their use.
HMRC accept that the likelihood of relevant harm occurring varies according to the use of the land.
Is there a definition of contaminated land costs?
Yes! The general definition of contaminated land costs are those incurred in, ‘preventing, minimising, remedying or mitigating any harm or pollution of land or controlled waters, by reason of which the land is in a contaminated state, or restoring the land or controlled waters to their former state’.
What expenditure qualifies for Land Remediation Relief?
- Staffing costs
- Materials
- Subcontracted costs incurred from both connected and non-connected companies
- Professional fees incurred for advice on how to remediate the contaminated land.
What if my company is making a loss?
The loss (or part of the loss) is available for surrender using a 16% payable tax credit rate. This means that a loss-making company can still receive a very valuable tax benefit when claiming land remediation relief.
How do I claim and is there a time limit?
The accounting treatment determines when a company can claim land remediation relief for revenue expenditure. A company claims land remediation relief for qualifying revenue expenditure in the accounting period where the expenditure is deducted in calculating the profits. Many property development companies will hold land as WIP in their accounts during the development of a site. Only when the remediation costs are released to the profit and loss account will a claim for land remediation relief become available. The normal rules apply when amending a corporation tax return (i.e. within 12 months of the statutory filing date)
A company, carrying on a trade or property business, can also elect that capital expenditure on qualifying land remediation is allowed as a deduction in computing their taxable profits. The deduction is allowed in the tax computation for the accounting period in which the capital expenditure is incurred.
What information do we need to identify if a claim is possible?
We start with the site Investigation and soil report, details of works undertaken, the remediation contractor’s priced tender and final account. This information is scrutinised to determine if there are qualifying items for land remediation relief.
Does my accountant need to get involved?
As a specialist we will liaise with your accountant to provide them with a fully disclosed report suitable for submission to HMRC. Your accountant will need only include the report with your tax return on submission to HMRC.
Let YesTax make the process simple and get in touch!