Andrew Stanley, founder of STax, a firm set up four years ago to help British businesses maximise entitled tax reliefs, writes about the value of capital allowances for manufacturers.
Capital allowances are a form of tax relief on items bought for use within a business. They allow manufacturers to write off the cost of assets against taxable profit.
Tools, machinery, office or kitchen equipment, computers, vehicles, pieces of plant and factory equipment may all qualify for capital allowances.
Any accountant worth their salt should pick up on these, but manufacturers that own their premises can also claim for certain fixtures and integral building features. These could include electrical wiring, cold water systems, heating, air conditioning systems and lifts.
Claiming capital allowances on fixtures and building features requires a level of specialist expertise beyond that which a general practitioner could be expected to possess, so less obvious items are often left unclaimed.
Consequently, many manufacturers are only claiming the tip of the iceberg while most of the value remains hidden from them. This means they pay more tax than they need to i.e. lose money.
Take Hawksley & Sons, which manufactures laboratory and medical equipment for domestic and international customers, as an example. While the firm had claimed capital allowances on machinery it used for business purposes, its directors had never thought about fixtures and features in the building. They bought their premises back in 2006 for around £300k.
Hawksley & Sons appointed capital allowances specialist STax, which reviewed the history of the building and then conducted a capital allowance survey to calculate an apportionment of the expenditure.
They found £100k of unclaimed allowances in the fabric of the building for Hawksley & Sons. These included fixtures and fittings such as a disabled lift, compressed air systems and specialised utility infrastructure to support the firm’s industry specific plant and machinery.
Capital allowances can substantially reduce a manufacturer’s tax bill or in some cases provide a cash rebate for previous years. Individual claims can sometimes amount to as much as 35% of the value of a freehold i.e. £350K of tax relief for a building bought for £1m.
Why the urgency?
The Finance Bill 2012, which comes into force April 2014, has changed the way capital allowances work at the point of sale. The central reform is the introduction of mandatory pooling of capital allowances. From April 2014 all commercial properties must be fully assessed and capital allowances pooled, recorded and transferred to the new owner.
If this does not happen by the book then the opportunity to claim simply disappears. Businesses wishing to unlock tax relief need to act now or risk losing this major tax benefit.
STax is a firm of tax advisers specialising in capital allowances. For further information visit http://www.staxuk.com/
