BHP recently worked with Modelsport, the number one online retailer for radio controlled vehicles. Modelsport had recently purchased new business premises as part of plans to expand the company. The company invested £700K in a former lens manufacturing warehouse and retail shop , which provided the ideal space for it to continue its operations. Modelsport then approached BHP, and requested that we offer advice on how they could make their investment as tax efficient as possible.
What are Capital Allowances?
Capital Allowances are a form of tax relief which is available to all UK business owners. The value of the capital allowance can be deducted from income or corporate tax on any profits your business makes. However, UK businesses can only claim capital allowances under certain circumstances. The Capital Allowances Act 2001 explains that a claim can be made for an investment in:
- Machinery and plant
- Renovation of business premises
- Research and development
- Assured tenancies
When Modelsport contacted BHP, our team set about producing a full capital allowance report for the company, which listed all of the assets that qualified under the Capital Allowances Act. Once this was completed, we then liaised with property lawyers; the necessary clauses were to be incorporated into the sale contract to secure the support of the seller, who had never claimed any capital allowance on the property.
Understanding what you can claim for
Unfortunately, it can be difficult for business owners to establish what they can and cannot claim for, and to calculate the precise value of the tax relief they will receive. Although Modelsport could not claim for the overall cost of purchasing the car dealership, it was possible to claim for the expenditure associated with the renovation and fit out of the new property and integral features.
Integral features can be included in the overall value of the claim, and can help to boost the amount of tax relief that you receive. These include items within the property which cannot be easily removed, such as alarm systems, light fittings, air conditioning and heating. The capital allowance report identified and valued integral items so they could be included in the claim. You may also be able to claim for fixtures within the building – a fixture is something which can be easily removed, such as furniture, workbenches or shelves.
When BHP had completed the work, it was identified that £136K of the overall purchase spend was eligible for a capital allowance claim. The client was able to include this information on their tax return, and ended up reducing their tax liability by £27K. This is money which would have been lost if the company had decided not to work with BHP in order to claim for capital allowances.
If you would like to find out more about identifying and claiming capital allowances to reduce your tax bill, contact BHP today. Call us and make an appointment with one our experts who will help you to assess if you can make a capital allowance claim.