Page 29 - PWM2024_September Ebook

TECHNOLOGY REPORT

them beyond that is capital. redecoration is a repair and so can be deducted for tax purposes But there’s a catch to watch out for
And Beresford agrees. He comments when incurred. which Wright highlights: “Firms can’t
that “a repair is a like for like repair but claim the two allowances simultane-
allowing for modern day equivalent – As a consequence, he advises: ously – it’s a choice of either AIA or
such as replacing single-glazed windows “Whenever building work is commissioned covering more than WDA in the first year.” He goes on to
with double-glazed units.” But he differ- one task, firms should always ask for the invoices to be subtotalled
entiates a repair from an improvement by area or sub-project as appropriate.” He says that doing this will advise “where a business spends more
as being where a firm goes “beyond the than £1m on qualifying assets, it’s most
modern-day equivalent such a repairing help determine what tax relief is available now and what will be tax efficient to offset the AIA against
a broken doorbell with a full access con- treated as capital. integral features first, as the WDA for
trol videophone”. Beresford thinks the same and comments that firms should be ordinary plant and machinery is 18%,
He warns that while the rules for “proactive rather than reactive” in this regard. His clear advice is three times higher than those available
claiming repairs “do allow for repairing to ensure that firms document – from the outset – not just the for integral features”.
to modern-day equivalents, such as works, but the reason why they are being undertaken. Further, he To complicate matters even further
replacing fluorescent lights with LED says that “sufficient details about and breakdown of the cost of the there are currently a number of other
lights, they do not extend to improve- works should be obtained while the works are being undertaken first year allowances available to busi-
ments, such as replacing worn vinyl and everyone is still engaged”. Doing this after completion will be
flooring to marble tiling”. an uphill task as details and information will be that much harder nesses on the cost of new qualifying
Looking at larger-scale changes, to obtain from contractors and consultants who will have (men- plant and machinery which also need to
Wright gives further examples: “Where tally and physically) moved onto other jobs. be considered if tax relief on any expend-
a roof blows off and the firm pays for a iture is to be maximised.
like-for-like replacement, that cost Capital allowances
should be a repair and therefore deducti- Structures and buildings allowance
ble for tax purposes in the period Capital allowances are a tax relief that is given on certain items It can be painful to wait for tax relief
incurred. In contrast, if it decides to of qualifying capital expenditure. Beresford details here that plant on capital expenditure on buildings and
have the roof replaced in order to add a and machinery allowances are the most common. But apart from as Beresford details, expenditure on
Avoid tax traps as it’s enhanced the building beyond its – can include what are known as integral features in buildings. buildings does not typically qualify as
pieces of machinery, he says qualifying items – known as fixtures
mezzanine, then the cost will be capital
plant and machinery. But there are
state when it was acquired.”
Wright expands on the point, noting that integral features are
It needs to be understood that if an
building works undertaken to an exist-
expense should be treated as capital, any items that, “put simply, are things ‘with which’ rather than ‘in exceptions that he mentions: incidental
which’ a business operates”. He says that qualifying integral fea-
incidental costs are also likely to be capi- tures are strictly defined as electrical and lighting systems; hot and ing building or structure to aid the instal-
tal in nature. For instance, the cost of cold water systems; lifts, escalators and moving walkways; pow- lation of an item of qualifying plant and
building an extension to the premises ered ventilation systems, and air cooling, heating or purification machinery. This could involve, for
would be capital, and therefore so would systems; and external solar shading. example, constructing a lift shaft within
any associated legal or planning fees. He also explains that with most capital expenditure on prem- an existing building to facilitate the
All of this said, Beresford does make ises, “firms often have to wait until they sell to get any tax relief. installation of a new lift, or adding ther-
one key point: that “some companies However, money spent on plant and machinery and integral fea- mal insulation to an existing commercial
might not, for a number of reasons, want tures can qualify for higher rates of capital allowances, meaning property.
to expense all repairs through their P&L they can get tax relief much sooner.” It needs to be remembered Both he and Wright also point to the
account as it impacts on the reported that the cost of items classed as integral features qualifies for an SBA that was brought in from October
profitability of the company”. In this annual writing down allowance (WDA) at a rate of 6%, which, 2018. This applies to the cost of con-
instance those repairs can instead be says Wright, “allows tax relief based on a small amount of the structing or renovating commercial
capitalised and added to the balance asset’s cost to be claimed each year – possibly even extending past premises for use in a trade; the allow-
sheet but would qualify for tax relief if its useful life”. ance is currently 3%. The allowances
they qualified for a capital allowance. However, many businesses will be able to get more tax relief can also be passed on to the next owner
sooner by claiming the annual investment allowance (AIA) of a qualifying property if that property is
Detailed invoicing against the cost of these integral features in the year they’re acquired within the SBA tax life – cur-
When works are completed a single acquired. In describing what AIA is, Beresford says: “AIA is a first- rently set at 33 and one third years.
invoice might cover a range of changes year allowance given at 100% of the allowed limit of expenditure Wright explains that “leaseholders can
such as an extension and redecorating a on items of qualifying plant and machinery.” He adds that “since qualify for SBAs on qualifying building
staff restroom. In this instance, Wright April 2023, the level of AIA has been set permanently at £1m. In works they pay for such as fitting out
explains that the cost of the extension other words the first £1m on qualifying plant and machinery, premises for their use.” But for building
would be capital and, subject to the including any ‘integral features’ can be claimed at 100%”. It’s for owners, as opposed to tenants, Beresford
availability of any structures and build- this reason that he says that “at the moment the claim rates for considers SBA “just a timing benefit as
ings allowances (SBA), only recoverable capital allowances are relatively generous, particularly on items of any claim reduces the base cost of the
when the premises are sold, but the plant and machinery”. property when it is eventually sold”.

www.printweekmena.com September 2024 PrintWeek MENA 27