Building a new commercial property? Don’t overlook Capital Allowances
Have you built, or are you building, a new commercial property? Here’s what you need to know about Capital Allowances
Building a new commercial property represents a significant investment. But within the overall construction cost there can be substantial expenditure that may qualify for Capital Allowances. The challenge is that qualifying expenditure does not necessarily identify itself within the construction accounts.
A new build project may involve hundreds, or even thousands, of individual costs. Some may qualify as plant and machinery, some may fall within the Structures and Buildings Allowance regime, while other expenditure may not qualify for Capital Allowances at all, so understanding the difference can have a significant impact on the tax relief available.
What could qualify?
Although the building itself does not generally qualify as plant and machinery, many of the systems and installations incorporated into it potentially can. The precise treatment depends on the nature and function of the asset, and depending on the property and how it is used, qualifying expenditure could include items such as:
• Electrical and lighting systems
• Heating, ventilation and air conditioning
• Hot and cold water systems
• Sanitary installations
• Fire and security systems
• Data and communication installations
• Lifts
• Certain fixtures, fittings and specialist equipment
Qualifying plant and machinery expenditure also needs to be correctly categorised. For example, some assets may fall within the main pool, while integral features such as certain electrical, water, heating and ventilation systems are generally allocated to the special rate pool.
For companies, the timing of expenditure can also be important when considering the availability of reliefs such as the Annual Investment Allowance and other first year allowances.
So what about the building itself?
This is where Structures and Buildings Allowance (SBA) also needs to be considered.
SBA can provide tax relief on qualifying construction expenditure relating to non residential structures and buildings where the relevant conditions are satisfied. However, expenditure on plant and machinery is excluded from the qualifying SBA expenditure.
That makes correctly separating the different elements of the project particularly important. A point particularly worth noting for accountants and advisers: expenditure qualifying for plant and machinery allowances must be excluded from the qualifying expenditure used for an SBA claim.
Why can new build claims be complicated?
The difficulty is often in the detail. Construction cost information is generally prepared to procure, manage and account for the building project. It is not usually prepared with Capital Allowances in mind. So, a single contractor package could therefore contain several different types of expenditure for Capital Allowances purposes.
For example, one package may include qualifying plant and machinery alongside building works that do not qualify as plant. There may also be preliminaries, professional fees and other indirect costs. Where appropriate, elements of these costs may need to be attributed to the qualifying expenditure on a reasonable basis.
Simply applying a percentage to the overall construction cost is therefore not a substitute for analysing the underlying expenditure.
A robust claim needs to establish what was actually provided, what it cost and the appropriate Capital Allowances treatment.
Good information makes a difference
If your development is currently underway, this is a particularly good time to think about Capital Allowances.
Retain as much of the underlying project information as possible, including:
- Cost plans and bills of quantities
- Contractor and subcontractor breakdowns
- Interim and final accounts
- Invoices
- Specifications
- Drawings
- Variation schedules
- Professional fee information
These records can make it considerably easier to identify and support qualifying expenditure.
Years after a development has been completed, the information may still be obtainable, but people move on, contractors change, records become harder to locate and the detail behind individual costs can be lost.
So, what should you do?
If you are currently building a commercial property, don’t wait until several years after completion before considering Capital Allowances. Keep detailed records throughout the project and consider having the expenditure reviewed while the construction information is readily available.
If your development has already been completed and no detailed Capital Allowances review was undertaken, that does not necessarily mean the opportunity has disappeared. Depending on the circumstances, previously unidentified qualifying expenditure may still be capable of being addressed.
The key is establishing what expenditure was incurred, when it was incurred, how the property is used and what relief has already been claimed.
How Blue Dawn Commercial can help
Blue Dawn Commercial provides specialist Capital Allowances support for commercial property owners, businesses, developers and their professional advisers.
For new build and refurbishment projects, we can analyse the underlying construction expenditure, identify qualifying plant and machinery and provide the detailed analysis required to support the Capital Allowances position.
If you’re building a new commercial property, have recently completed a development, or want to establish whether an existing project has been properly reviewed for Capital Allowances, get in touch.
