Claiming tax relief on refurbishment

The oncoming summer can allow businesses the time and opportunity to renovate their premises, but consideration should be given to the financial implications – especially if you want to maximise the available tax reliefs. Here we outline some tax relief basics…and the potential pitfalls…

Claiming relief

You can claim a full tax deduction for all expenditure on repairs to your building that are incurred in an accounting period.

Alterations to a building will be treated as ‘capital expenditure’. This means that the expenditure does not qualify for a tax deduction against profits but may eventually get tax relief for capital gains tax as an ‘improvement’ to the property.

Some capital expenditure will qualify for relief. Expenditure on fixtures may qualify for relief under the capital allowances system. This may mean that your expenditure on fixtures gets immediate tax relief due to the Annual Investment Allowance (AIA) but this will depend on how much other expenditure qualifying for plant capital allowances you have incurred in the accounting period. The current limit for expenditure relieved by the AIA is £500,000 but this figure is currently up for review, and further information is expected at Autumn Statement 2015. Please contact us if you are planning significant expenditure on fixtures and other plant and machinery.

Not all fixtures qualify for capital allowances but many do. Expenditure on fixtures covers a wide variety of items, from lights and boilers, to toilets and other sanitary ware. Different types of business will require different fixtures and you should check whether your chosen items qualify for capital allowances. Contact us for more information and to find out how this can impact your business.

Potential pitfalls

It may seem that both repair expenditure and expenditure on fixtures are equally valid ways of receiving a 100% tax break on your investment.

However, note the tax treatment for fixtures if you should decide to sell your business premises. Someone acquiring a property may be able to claim capital allowances on the fixtures which were put in place by the previous owner. When the transaction takes place both parties should agree on a price for the fixtures. The price can be any amount between the original costs of the fixtures when they were installed in the building down to £1. If the price is the original cost of the fixtures the capital allowances claimed by the previous owner are effectively clawed back (but the purchaser can claim on this amount). If the price is £1 the capital allowances claimed by the previous owner are effectively retained (but the purchaser can only claim on £1).

The dividing line between what is a repair rather than an alteration, and what does or does not qualify for capital allowances, can be difficult to ascertain. Careful planning can help you maximise the relief available, and help your new-look business to succeed.

In addition the rules that apply on the sale of a building which has fixtures which have qualified for capital allowances can be complex. Please contact us for further advice for your business.

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May 2015 Newsletter

Welcome to the May 2015 Newsletter from Easterbrook Eaton Limited

Ahead of the looming General Election, the leaders of the UK's political parties have this month been keen to unveil a number of high profile crowd-pleasing policies - prompting the British Chambers of Commerce (BCC) to present an open appeal to party leaders to refocus on long-term economic strategies, rather than 'headline-chasing' measures.   

Meanwhile, the Small Business Act recently received Royal Assent, with the aim of boosting the creation of small businesses, improving access to finance and tackling the controversial area of zero hours contracts.

Parties to 'rein in' pledges as General Election approaches

The Director General of the British Chambers of Commerce, John Longworth, has appealed to the main political parties to rein in populist pledges and regain a focus on long-term economic strategies, rather than 'headline-chasing' measures, ahead of the forthcoming General Election.

In an open letter to the leaders of the main parties, Mr Longworth said: 'While there are some encouraging statements and positive ideas in manifestos, on the campaign trail it seems strategic vision and evidence-led policy announcements have been left on the bus. In their place we've had tactical headline-chasing and lazy assumptions; a reliance on populist statements, not economic common sense; and niche policy announcements, rather than a focus on the fundamentals. For example, issues like how the UK earns its way in the world go unaddressed'.

'Parties are competing to make ever more strident pledges to freeze taxes and ring-fence spending for the life of the next Parliament, without being able to see very far down the economic road ahead. No well-run business would tie its hands in this way,' he added.

Meanwhile, the Institute for Fiscal Studies (IFS) has warned that tax plans being put forward by both Labour and the Conservatives in the run-up to the General Election risk having a 'long-term malign influence' on the economy.

Specifically, the think-tank claims that proposals from both main parties to cut tax relief on pension savings have the 'potential to be complex, damaging and counter-productive.'

Earlier this month the Tories announced their intention to slash the pension annual allowance from £40,000 to £10,000 for additional rate taxpayers who earn over £150,000. The Conservatives said the measure would fund an inheritance tax (IHT) cut, which would exempt homes worth up to £1 million from IHT.

Meanwhile, the Labour party said it would remove the current system based on income tax bands and cut pension tax relief to 20%.

However, the IFS has warned that 'we risk rushing towards something like chaos in the taxation of pensions for those on high incomes.

'While only affecting a relatively small number of high-income individuals, both sets of proposals have the potential to be complex, damaging and counter-productive.'

It added: 'The undesirable distortions to savings behaviour and to work incentives have the potential to be significant… there is a danger that the tax proposals being put forward through this General Election campaign will have a long-term malign influence on our tax system and economic welfare'.

The Small Business Act: benefits to your business

The Small Business, Enterprise & Employment Act has received Royal Assent, and became law on 26 March this year.

The Act is designed to boost economic growth through the creation of small businesses, improving access to finance and putting an end to exclusivity clauses in zero hours contracts.

Business Secretary Vince Cable previously said: 'Small businesses provide jobs for millions of people across the country and are driving the economic recovery. The Small Business Act will create the right environment for small businesses to continue to thrive by giving them greater access to finance to help them innovate and grow, and make it easier for them to export goods and services made in Britain.

'The Bill's measures also mean there is nowhere to hide for firms who do not play by the rules, whether by abusing zero hours contracts or not paying the minimum wage.'

A key feature of the Act is providing alternatives for SMEs who have had loan applications rejected. Should you apply for a loan with one of the 10 largest banks which is then denied, they are now required to refer the details of your business to an online finance platform. The intention of the platform is to offer you access to alternative options through other lenders.

The 10 banks who have been instructed to refer any denied applications are: RBS, Barclays, Lloyds Banking Group, HSBC, Santander, Clydesdale Bank, Yorkshire Bank, Bank of Ireland, Allied Irish Bank and Danske Bank. The change has been implemented to ensure that data held by these banks is distributed to other willing finance providers.

The scheme is being run by the British Business Bank, which is actively seeking alternative finance providers that would like to take part.

Chief Executive of the British Business Bank, Keith Morgan, said: 'Small businesses will have a greater choice of provider and chance of securing finance, alternative finance providers will have access to a bigger market of potential clients, and the major banks will be able to offer an additional service to those they initially turn down.'

We can help to boost your business's profitability and maximise growth - please contact us for advice.