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Is it worth doing an Embedded Capital Allowances claim?

By June 17, 2016 No Comments

Many people when looking at the issue of Embedded Capital Allowances feel that it may be more trouble than it’s worth.

Recently we visited a client who owned 5 properties that they rented out. You would think that a company engaged in the rental of commercial property would be fully aware of this tax legislation, but they had done nothing and as a profitable company dutifully paid their tax liability every year, moaned about the size of the bill and then just got on with it. They had an excellent accountant but that accountant was not experienced in this specialised area and had no resource available to do the work required in terms of surveying, interpretation and preparation of a report in keeping with the HMRC requirements applicable to their specific situation.

The client recognised there may be value to this but were concerned that it would embroil them in a workload that was not conducive to their existing level of work commitments. We assured them that was not the case and they agreed to proceed. We gathered some simple information regarding dates of the property purchase, a copy of their most recent full accounts and the details of their accountant – that was it! No further hands on involvement from them at all.

We scheduled a meeting with their accountant which took 45 minutes and we then conducted a survey of the properties concerned using our own specialised in house surveyors. Within 6 weeks we had completed the report and identified £1.4million in allowances – 20% of the original purchase value of the properties. This represented a tax repayment and reduction of future tax liability totalling £280K of which over £90K was by way of a tax repayment going back over the last two years tax they had paid. They also had a significant reduction in their current year’s liability as well as further reductions going forward over a few years.

The question “is it worth it?” is certainly answered there with a resounding “yes it is” and the concern it will take up the client’s time is clearly not substantiated as we do all the work required with minimal input from the client. All UK tax paying commercial property owners (corporate or individual) can benefit from this review and that figure of 20% of the total original purchase price is highly valid. Even a property bought at £250K is likely to have £50K or more in allowances so there is no reason why all commercial property owners should not look at having this done. We do the work – the client sees the significant benefit.

HMA Tax