The abolition of Agricultural Buildings Allowance – which enabled farmers to write off 4 per cent of the cost of new buildings against profits each year – came as a serious blow. But by claiming expenditure under Capital Allowances, farmers can still claw back significant amounts of tax.

Although you can no longer claim allowances for the building structure itself, it is possible to claim for most plant and equipment – which includes some surprising features like silage clamps and slurry stores

Capital Allowances

Under the existing regime, most businesses can write off up to £100,000 of qualifying plant and equipment expenditure against profits each year, using the Annual Investment Allowance (AIA).

However, from April the AIA will be slashed to just £25,000, with any expenditure above that threshold receiving annual relief of just 18 per cent, compared to 20 per cent at present. So what does that mean for farmers?

It is vital businesses consider what equipment they are likely to need in the short to medium term, and bring that investment forward to maximise the available tax savings. They must also be careful to classify expenditure correctly, as many farmers simply lump plant and machinery into the overall building cost, and therefore lose out on valuable tax relief.

What can I claim for?

Examples of qualifying expenditure include milk bulk tanks and parlour equipment, silage clamps, cubicles, water fittings, renewable energy projects and electrical work. And it is not just new equipment which qualifies – it is also possible to claim for alteration of existing farm buildings to accommodate necessary plant and machinery.

This allows a much greater proportion of the total building and renovation costs to qualify for capital allowances – potentially including a proportion of project overheads, such as planning fees and project management.

Anyone undertaking building projects should not only consider what tax allowances are available for the work they are doing, but also keep detailed schedules of work to back up those claims.

Farmers installing energy saving or water conserving equipment could also benefit from Enhanced Capital Allowances.

These provide 100 per cent tax relief in the first year, with no capped limit, for items like water efficient taps, slurry separators and energy saving lighting. Rainwater harvesting equipment may also qualify, potentially providing relief on part of the building itself.

If you’re carrying out any repair work, make sure you get it invoiced separately, as repairs can be entirely offset against profits in the first year.

Those with account year-ends other than March 31/April 5, need to take particular care, because of the hybrid allowances which will be available in 2012.

While the AIA threshold will be between £25,000 and £100,000 depending on the date of the year-end, most equipment will need to be bought before the end of March 2012 to get full relief, adding an extra degree of complication.

Inevitably, the changes will lead to higher tax bills for businesses. For example, a farming partnership with annual profits of £100,000, investing £40,000 on average in new or second-hand equipment each year, could see its tax bills rise by £4,500 a year.

It is therefore essential to make the most of the allowances available and examine what tax saving options – such as restructuring the business – are available to minimise tax bills in the future.

Maximise your pension

Another way to maximise the tax relief on new buildings is to use a Self Invested Personal Pension (SIPP) to claim up to 40 per cent tax relief – or 50 per cent for those with incomes of more than £150,000. For example, someone building a new covered yard at a cost of £50,000 could contribute £40,000 through a SIPP, with HM Revenue and Customs funding the remaining £10,000 via 20 per cent tax relief.

On top of this, higher rate taxpayers would receive a further 20 per cent tax saving from a reduced tax bill, making the net cost of the building just £30,000.

Farmers can also transfer existing land and buildings into their SIPP, which qualify for tax relief in the same way. Land and buildings owned by the pension fund must then be rented at a market rate, providing further tax relief to the business, and additional funding for the pension.

The annual limit for pension contributions is £50,000 per person, but it may be possible to roll forward unused allowances from the previous two years. It is possible to draw down 25 per cent of the SIPP at the age of 55, but assets may have to be sold to release cash. Farmers must consider an exit strategy to sell assets to the next generation through their own SIPPs, or as part of a whole farm disposal.

Pensions are a very tax efficient vehicle, and extremely valuable to businesses whose profits fluctuate largely from one year to the next. As with all financial planning it is important to take professional advice to maximise the opportunities available.

Existing buildings

Many farms have traditional buildings which are no longer suitable for modern agricultural use, but it is essential they are not left unoccupied. Often these buildings have a high intrinsic value, and HMRC is starting to question whether they should qualify for 100 per cent Agricultural Property Relief from Inheritance Tax.

The key question is whether the buildings were occupied by farming in the two years prior to the owner’s death. If they were either unoccupied or merely used to store sundry bits and bobs, there is little argument to defend an APR claim.

To avoid a large Inheritance Tax bill, farmers should ensure buildings are in constant agricultural use, well maintained or renovated. If they are used as part of farm diversification, be aware they may be subject to Business Rates.

Keep any evidence of repairs and business use – as long as the building is used in the farmer’s own business any part not covered by APR may qualify for Business Property Relief – a substantial saving for the future.

If any of this information affects you contact us on 0845 467 2765 or email support@exactbusiness.co.uk

The plea from the British Chambers of Commerce came as the chancellor seeks to remove “blockages to growth” in this month’s Budget with little fiscal room for manoeuvre.

A sharp drop in business investment is one of the biggest shadows in an otherwise slightly brightening economic picture. It was down 5.6 per cent in October-December from the previous quarter and down 0.6 per cent on a year earlier, according to the Office for National Statistics.

In its forthcoming Budget submission, the BCC will press for a two-year scheme in which medium-sized businesses could get an allowance of up to £1m each to offset the cost of plant, machinery and buildings against corporation tax.

Adam Marshall, the BCC’s director of policy, said it was a “radical idea to get companies that have significant amounts of cash and investment plans to actively implement those plans”.

He feared that businesses would continue to cancel or delay investments unless there was action.

Mr Marshall said focusing the measure on midsized companies, typically those with about £20m turnover and 150 staff, would boost local supply chains.

The move would require a U-turn from the chancellor, who is cutting capital allowances as part of his plan to reduce corporation tax from 26 per cent to 23 per cent by 2014.

From April, capital allowances on plant and machinery will be reduced from 20 per cent a year to 18 per cent and the £100,000 first-year annual investment allowance will be slashed to £25,000.

The British Retail Consortium is also pressing the chancellor to extend the 100 per cent capital allowances available in some enterprise zones, so similar incentives are offered in all regions and to businesses of all size.

The BCC will also urge the chancellor to abandon a swingeing 5.6 per cent increase in business rates due to come into force this year – determined by September’s high inflation rate. The retail consortium is pressing for a lower increase.

Stephen Robertson, the BRC’s director-general, said retailers were “accumulating cash they are often too fearful to invest”.

If you think any of these articles affect you and you would like some advice, speak to a capital allowance tax expert at Exact Business Taxation Services and we will be happy to help you. Call us on 0845 467 2765 or email us at support@exactbusiness.co.uk

The irony is that many businesses, or certainly those that own commercial property, will have been sitting on a sizeable cash benefit from HM Revenue & Customs (HMRC) all along – but one that they’ve not been made aware of. This cash benefit comes in the form of unused capital allowances.

According to research by Deloitte, and this correlates with our own experience, more than nine in ten owners of UK commercial property – from the smallest newsagent to a 30-storey office block – will be due a rebate from HMRC through unused capital allowances tax relief.

And because this tax relief can be attributed to any building of any age, there are billions of pounds of net tax rebate languishing unclaimed in the UK’s commercial property stock. It would be impossible to give an exact figure but we estimate that it’s in the region of £65bn-£70bn.

To date, thousands of commercial property owners have made successful claims, with the average claim in excess of £100,000 and the biggest amounting to tens of millions. But these thousands own only a tiny percentage of the estimated 1.4 million UK commercial properties that are out there.

Scratching under the surface

Finance directors will almost certainly be familiar with capital allowances. They’re a form of tax relief available to anyone incurring capital expenditure buying, building or making adjustments to commercial property.

But why is so little known about the tens of billions of pounds of unclaimed capital allowances? Firstly, HMRC, understandably, isn’t that keen on alerting too many people to it, especially at a time when the Treasury’s coffers are all but bare.

Secondly, the problem, historically, has been that identifying capital allowances within commercial properties is extremely complex, so much so that even accountants only scratch the surface.

Indeed, while accountants will claim on more obvious items such as shutters and curtains, fire extinguishers and carpets when a client buys a commercial property, generally speaking they will not drill down to the items where the far more significant costs to a business lie. These might include air conditioning or heating systems, lighting and security systems, plant and machinery items.

The issue for accountants when a client buys a property is that they will not have receipts for all the potentially qualifying assets within that property. Therefore they simply can’t progress it any further.

Specialist capital allowances firms such as Exact Business Taxation Services , on the other hand, use thousands of different matrices to work out the purchase price of such and such an item in a building in a particular area in a particular year. They enter a building and essentially undertake a forensic audit, drawing on a far more detailed understanding of capital allowances practice and law.

Don’t be an April fool

On 6 April, new capital allowances rules are being implemented, where any tax rebates will be based on the previous owner’s purchase price of the building, not the price at which the current owner bought it. Therefore, if the value of a property has increased, companies planning to buy a commercial property should do it before that date or they could lose lose a significant chunk of their potential tax rebate. Of course, if the value of the property they are buying has dropped, they are potentially better off waiting until after 6 April.

If you need more advise call us on 0845 467 2765 or email support@exactbusiness.co.uk

• No claim, no fee
• You pay us AFTER you get your refund!
• No separate surveying costs
• Can be used against ANY income stream
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• We work with your existing accountant to make it a seamless process
• Full Professional Indemnity cover
• 100% HMRC success record
• Legislated under CAA2001 (Part 2)

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Furthermore, if you intend to buy your commercial property – including a fresh build, extension or refurbishment – then you can certainly work directly with the particular architect or quantity surveyor so that you can maximise the claim and also complete the summary report as promptly as you can. If you’re planning remedial or perhaps re-fitting work, make sure to alert your accountant and your capital allowance tax specialist firm in the required time before the project commence date, so that they could make records before and also after, to ensure an exact report is sent to HMRC.

A specialist firm like Exact Business Taxation Services Ltd can put together a extensive capital allowance review which identifies things that qualify for enhanced duty savings. This is suited to any tax-paying person, business, LLP or partnership which usually owns commercial freehold house. Often the charge because of this service is a percentage with the tax saved, so if no viable capital allowances is found, then there will be zero cost involved.

However, changes to the legislation have meant the period is now running out for many claims, so it will quite literally pay to behave quickly. Industrial Building Allowances are increasingly being phased out, and can be abolished by April 2011, while recording allowance rates have been reduced following March 2007 Budget. But you can still find enhanced capital allowances available with 100% for first yr allowances on energy successful plant and machinery, and cars emitting 110g/km of skin tightening and or less, plus an enhanced fee of 40% first yr allowances for expenditure inside the 2009/10 tax year.

If you are in any doubt call us at Exact Business Taxation Services Ltd on 0845 467 2765 or email us at support@exactbusiness.co.uk.

CBI director-general John Cridland noted in an open letter to the chancellor that his submission of the Budget for 2012 is the perfect opportunity to promote business growth in the UK and to help the economy push towards future improvements.

Set out in the letter, Mr Cridland makes a number of recommendations which he would like to see the chancellor implement, including the stimulation of private infrastructure investment through new models of private finance, the provision of non-banking finance to medium-sized enterprises across the UK and improving the flow of credit to all businesses.

He commented: “Hammering out the details on credit easing, extending the Youth Contract to 16 and 17-year-olds and introducing the New Build Indemnity Scheme for mortgages at the earliest opportunity will all provide a real boost for UK growth and jobs.”

Ian McCafferty, CBI chief economic adviser, added many companies presently lack certainty and are therefore reluctant to invest and as a result, the government must deliver on its corporation tax roadmap without delay.

He noted the tax system should encourage rather than stifle private sector investment through better use of capital allowances.

The news follows the recent announcement of European Commission (EC) figures which revealed manufacturing output across the eurozone was down by one per cent during 2011 as a whole in comparison to the previous year.

EC vice president Antonio Tajani, commissioner for industry and entrepreneurship, said: “If trust comes back to European industry and in particular to the millions of small to medium-sized enterprises in this sector, we will have the capacity to get smoothly out of the crisis.”

The CBI’s latest tax proposals include a new capital allowance to attract investment into types of infrastructure that do not currently qualify, and new forms of finance to help companies grow and take on staff.

CBI director-general John Cridland comments, ‘Delivering private sector investment in infrastructure, supporting mid-sized businesses, hammering out the details on credit easing, extending the Youth Contract to 16 and 17-year-olds, and introducing the New Build Indemnity Scheme for mortgages at the earliest opportunity will all provide a real boost for UK growth and jobs.’

Cridland adds that with the UK’s economy ‘firmly under the international spotlight’, there is no time to lose and says the government’s Plan A plus ‘must become a reality’.

In its proposal for changes to the UK tax system, the CBI is calling for a simpler way of taxing foreign profits, opening up investment into infrastructure that does not already qualify and improving the flow of credit to companies by expanding the Enterprise Investment Scheme.

Ian McCafferty, CBI chief economic adviser, says, ‘Companies that lack certainty on how they will be taxed in the future are reluctant to invest, so government must deliver on its corporation tax roadmap without delay.

‘We should ensure our tax system encourages rather than stifles private sector investment through better use of capital allowances.’

If you require any advise on Capital Allowances or think you qualify please call us here at Exact Business Taxation Services on 0845 467 2765 or email one of our friendly team at support@exactbusiness.co.uk.

If you would like any information on how Capital Allowances could benefit you please call us at Exact Business Taxation Services on 0845 467 2765 or email us at support@exactbusiness.co.uk

And because this tax relief can be backdated until the year the property was purchased, there are billions of pounds of tax rebate languishing in commercial property stock.

So what are capital allowances?

They’re a form of tax relief available to anyone incurring capital expenditure buying, building or making adjustments to commercial property.

Examples of properties on which capital allowances can be claimed include factories and industrial units, leisure facilities, warehouses and depots, haulage yards, offices, retail stores, care homes and hotels.

So why is so little known about capital allowances?

First, HM Revenue and Customs, understandably, isn’t keen to sing this opportunity from the rooftops.
Secondly, identifying capital allowances within commercial properties is complex, so much so that even accountants only scratch the surface.

While accountants will claim on more obvious items such as shutters and curtains, fire extinguishers and carpets, generally they will not drill down to the items where the far more significant costs to a business lie.
These might include air conditioning or heating systems, lighting and security systems, plant and machinery items.

A specialist capital allowances firm, by contrast, will have a different skill set and a more detailed understanding of capital allowances law and practice than most accountants, and be able to uncover more valuable capital allowances. If you think this applies to you contact Exact Business Taxation Services, specialists in Capital Allowances to see if we can help you identify more items to claim on 0845 467 2765 or email our friendly team at support@exactbusiness.co.uk