What businesses need to know about capital allowances

While the UK is on the brink of coming out the other side of the recession, there’s still a long way to go.

Whilst times are undoubtedly tough for SMEs, who may be sacrificing staff, technical equipment and even office space, it does not have to spell disaster. Why? Due to unclaimed capital allowances, small to medium-sized businesses could be due a significant tax rebate from the Inland Revenue. And after the UK narrowly escaped a triple dip recession, a windfall could be just the ticket for them in these straitened times.

What exactly are capital allowances?

In short, capital allowances are a form of tax relief available to anyone who incurs capital expenditure buying, building or refurbishing commercial property. Put simply, they are a means of reducing your tax bill.

Research tells us that more than 90% of UK commercial property owners will be owed tax relief in the region of thousands, or even tens of thousands, of pounds. And this is applicable to most commercial buildings.

Here at Catax Solutions, we have estimated the amount of capital allowances that are currently sitting unclaimed within commercial property to be in the region of £70 billion.

Why are capital allowances not on the radar of most small businesses?

Most people, let alone small business owners, are completely in the dark about what capital allowances are. That’s largely because they are an incredibly obscure area of tax.

In addition, it simply isn’t the area of expertise of the trusted accountants, lawyers and IFAs of small businesses to investigate the unclaimed capital allowances that can be found in these properties. In fact, it can be incredibly difficult to identify qualifying items within commercial premises such as office blocks, car showrooms and dental surgeries.

Rather, accountants enlist the help of capital allowances specialists to carry out in-depth forensic surveys if properties, using thousands of detailed matrices to uncover qualifying assets and their value. In a typical office, this might include heating systems, lighting and security systems, pipework and drainage, amongst other embedded features, which capital allowances specialists like to call the ‘intrinsic fabrication’.

Privately-owned businesses will be only too familiar with the cost of fitting these items given the need for extra electronics, lights, sprinkler systems and plumbing on each office floor.

Put into practice, acting on behalf of a privately-owned school, Catax Solutions recently uncovered almost £150,000 in capital allowances. And to give an idea of the items identified and where rebates were owed, this was broken down to include £6,000 for disposal and drainage installations, £20,000 for water installations, £59,000 for heating installations, £31,000 on ventilation installations, £14,000 for electrical fittings and over £20,000 for fixed internal fittings. So clearly there are significant savings to your tax bill to be made. Better still, Catax Solutions will only charge a fee if they are able to identify a sizeable amount of unclaimed capital allowances. All in all, it’s very worthwhile investigating to find out whether you have a claim!

Catax Solutions have worked with a number of different businesses in a variety of different sectors. A recent example of a successful sector case study was in the hospitality industry, with Catax Solutions successfully uncovering a staggering £400,000 in capital allowances in an independent hotel of 74 bedrooms.

Whether you’ve considered investigating them or not, capital allowances are your right and not a privilege; if you own your business premises and/or have made significant improvements to it, you deserve the tax benefit. And for owners of businesses such as hotels and private and independent schools who have dealt with the effects of the recession for the last few years, a tidy sum from the Inland Revenue would be a great advantage.

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