The next step

About the rates at which CAs are given

[Further Information]

About VAT payable under the CGS

[Further Information]

Businesses losing out on tax relief for installation costs

Repair or improvement?

Until 29 October 2018 whether you spent money on a repair or an improvement to your premises could be the difference between getting tax relief or not. But since then the difference is usually whether you’ll receive tax relief straightaway or spread over 50 years, there’s still a possibility of no tax relief at all. Knowing what types of expenditure qualify for which type of tax relief is therefore important, especially when it’s first recorded in your books.

Tip. If alterations to your premises are necessary for the installation or use of equipment used in your business, tax relief is allowed more quickly, i.e. not spread over 50 years.

Accelerating tax deductions

Tax deductions for the cost of equipment (HMRC calls it plant and machinery (P&M)) are given as capital allowances (CAs). Under the CAs rules P&M structural work can qualify for tax relief either for 100% of the cost for the accounting period in which it’s incurred, or at the rate of 18% per annum on a reducing balance. Note. An 8% rate can apply for a limited range of expenses (see The next step ).

What expenditure qualifies?

The structural and related works for which you can claim CAs at the 100%, 18% or 8% rates are where they relate to the:

• alteration of buildings required for installation of P&M
• removal and deconstruction of existing P&M, even if it’s not being replaced
• transportation of P&M from one site to another and its reinstallation; and
• additional VAT payable because of the capital goods scheme (CGS) (see The next step ).

Examples of the above are the cost of building or demolishing walls needed to install or house P&M, special wall coverings such as tiles and splashbacks, and sound proofing. There’s no list of expenditure that does or doesn’t qualify for CAs apart from those for which the 8% rate applies. Note. You don’t need to consider money spent on repairs and redecoration (except where tax relief must be spread over 50 years) because this will normally be deductible from profit as general business expenses.

Tip 1. Make sure your bookkeeper understands the need to categorise and record expenditure in accordance with the tax rules, especially those for CAs. If expenditure is incorrectly categorised it can cause the loss of tax relief altogether.

Tip 2. If you’re having construction work done, some of which is to install or relocate P&M, ask the builder to provide a breakdown of the costs. That will make it easier for you and your bookkeeper to spot expenditure which qualifies for CAs.

Tip 3. If a single cost covers different works, some of which partly qualifies for CAs, e.g. scaffold hire, you can apportion it in any fair way between qualifying and non-qualifying amounts.

For more information about the rates at which CAs are given and about VAT payable under the CGS, visit http://tipsandadvice-business.co.uk/download (CD 21.05.03).