HOW DO CAPITAL ALLOWANCES RELATE TO RENOVATIONS AND REFURBISHMENTS?

Renovations and refurbishments are common in the business world. Whether you are updating your office space, giving your commercial property a facelift, or modernising your manufacturing facilities, these activities often involve significant expenditures. The good news is that these expenses may qualify for capital allowances, providing a way to offset your tax liability and potentially save your business money. In this guide, we’ll explore how capital allowances relate to renovations and refurbishments.

 

Understanding Capital Allowances:

Before delving into how capital allowances apply to renovations and refurbishments, let’s briefly recap what capital allowances are. Capital allowances are a tax relief that allows businesses to deduct the cost of certain capital expenditures from their taxable profits. These expenditures typically relate to assets used in the business, such as machinery, equipment, and even property.

 

Capital Allowances for Renovations and Refurbishments:

When it comes to renovations and refurbishments, certain expenses may qualify for capital allowances. However, it’s important to understand that not all renovation costs are eligible. To be eligible for capital allowances, the renovation or refurbishment expenses must meet specific criteria, including:

1. Qualifying Expenditure: The expenses incurred during renovations or refurbishments must fall under the category of qualifying expenditure. Qualifying expenditure includes costs associated with integral features, fixtures, and certain plant and machinery.

2. Integral Features: Certain integral features of a building are eligible for capital allowances. These features include heating, cooling, and ventilation systems, electrical and lighting systems, and sanitary fittings. If your renovation or refurbishment work involves upgrading or replacing these integral features, the associated costs may qualify.

3. Fixtures and Fittings: Fixtures and fittings, which are non-structural items installed within a building, are also eligible for capital allowances. Examples include office partitioning, kitchen fittings, and bathroom fixtures. If your renovation work includes the installation or replacement of these items, you may be eligible for capital allowances on the associated costs.

 

Claiming Capital Allowances for Renovations and Refurbishments:

To claim capital allowances for renovation and refurbishment costs, you’ll need to follow these steps:

1. Identify Eligible Expenditure: Start by identifying the specific expenses that meet the criteria for capital allowances. This includes determining which integral features, fixtures, or fittings are part of your renovation or refurbishment project.

2. Quantify the Costs: Accurately quantify the costs associated with the eligible expenditure. You’ll need to keep detailed records of the amounts spent on each item or aspect of the renovation.

3. Ensure Compliance: It’s important to ensure that your renovation work complies with the tax regulations for capital allowances. Working with a qualified tax advisor or accountant who specializes in capital allowances can help you ensure that your claims are in line with tax laws and regulations.

4. Make the Claim: Once you’ve identified, quantified, and ensured compliance, you can make a capital allowances claim on your business’s tax return. The claim will reduce your taxable profits and lower your overall tax liability.

Renovations and refurbishments can be significant investments for your business. Understanding the potential tax benefits through capital allowances is essential. By identifying eligible expenditure, quantifying costs, ensuring compliance, and making the claim, you can potentially save money on your tax bill, making your renovation or refurbishment projects more financially rewarding. It’s important to consult with tax professionals who specialize in capital allowances to ensure that your claims are accurate and compliant with tax laws.