BDO SPECIALIST CAPITAL ALLOWANCES SERVICES

Transcription

1 BDO SPECIALIST CAPITAL ALLOWANCES SERVICES

2 CONTENTS INTRODUCTION 4 LEADING APPROACH TO CAPITAL ALLOWANCES AND LAND REMEDIATION RELIEF 5 OUR SERVICES 6 TAX RELIEF ON LAND AND PROPERTY 7 CASE STUDIES 8 CAPITAL ALLOWANCES QUESTIONS AND ANSWERS 9 ABOUT BDO IN THE UK 11 2

3 INTRODUCTION The accountancy market is principally made up of a few large, international organisations on the one hand and smaller local players on the other. BDO is neither but offers the advantages of both. We offer the flexibility, expertise, closeness and personal service of a local organisation together with the quality, professional expertise, strength and reputation of a strong international network. The best of both worlds. BDO is the market leader for exceptional client service in the UK. Within real estate our clients value us for our superior market intelligence, industry network of contacts and proactive, pragmatic and flexible approach. We provide assurance, tax and advisory services to help our clients increase shareholder value, navigate risk and regulations and create opportunities for growth. Our client portfolio is testament to the quality of service we provide. Clients include real estate investors, developers, funders, house builders and contractors, ranging from entrepreneurial and privately owned businesses to publicly listed companies, both in the United Kingdom and internationally. Our capital allowances service is embedded within our tax department but is led by experienced specialist surveyors who are dually qualified in tax. This means that they are part of a team working to optimise the tax outcomes for the benefit of each client s particular circumstances. To find out how BDO can help you please contact one of our capital allowances specialists or your local BDO office listed on the back cover. 3

4 LEADING APPROACH TO CAPITAL ALLOWANCES AND LAND REMEDIATION RELIEF Some of the reasons why real estate businesses look to BDO to assist with capital allowances and land remediation relief claims are: Every review is considered from a surveying perspective our surveyors will scrutinise all property expenditure, not just that for major developments; Our specialist surveying expertise is not matched by purely accounting based firms; Our ability to provide the wider tax/accounting offering cannot be matched by the surveying companies and specialist capital allowances companies; We offer competitive fee quotes to the Big-4 within a joined-up real estate department; Our surveyors have specialist mechanical and electrical experience our understanding of the subject matter means that we can quickly identify installations qualifying for Enhanced Capital Allowances; We regularly provide specialist capital allowances and land remediation relief services working closely with your existing advisers to provide them with timely capital allowances and land remediation relief claims that are fully reconciled to the fixed assets to seamlessly incorporate in the tax computations; We participate in the debate with HMRC on the development of capital allowances, lobbying on industry issues and proactively advising clients on the impact of anticipated changes; Our real estate and construction team has over 170 people across all of our UK offices so we have the depth and breadth of experience to really understand the industry, not just at partner level but throughout the team; We do not limit our review to capital allowances and land remediation relief if we believe there are wider real estate issues, we ll identify these to you. We can potentially get you tax back 4

5 OUR SERVICES Acquisition claims; Identify tax breaks on property acquisitions, including capital allowances, overage claims on Integral Features and, for new expenditure, Enhanced Capital Allowances (green technologies). Property portfolio and historical claim audits. Review and preparation of CAA 2001 s198/s199 elections to meet obligations under fixed value requirement and mandatory pooling legislation (Finance Act 2012). Preparation of contract wording to maximise entitlement to contribution allowances. Preparation of capital allowances and land remediation relief claims for new build, fit-out and refurbishment projects. Preparation of portfolio samples to identify the level of allowances available on a percentage basis across the portfolio, taking into account recent changes in legislation, construction technologies and processes. Agreement of percentages with HMRC. Preparation of pro-forma documentation for ongoing refurbishment, maintenance and build programmes where claims are prepared in-house. Planning and design audits at project feasibility stage can optimise the best design options to ensure that capital allowances are maximised without detriment to a project's commercial viability. This approach has been proven to significantly enhance the level of capital allowances available for property developments. Assessment and preparation of claims for land remediation relief. Advising upon works qualifying for Business Premises Renovation Allowances (BPRA). Submission of fully supported and referenced claim documents, reconciling to our clients accounts. Negotiation and agreement of queries raised by HMRC. Our chartered surveyors are skilled in assessing construction costs - we are not restricted by limited project information 5

6 TAX RELIEF ON LAND AND PROPERTY We aim to identify the most advantageous tax position available to our clients, whether we are consulted in advance of any spending decisions, or asked to review any existing entitlement. The main headings under which we would look to indentify entitlement include: Enhanced Capital Allowances (ECA) A 100% first-year allowance available on energy and water efficient technologies, as listed on a regularly evolving government website. Where expenditure on these technologies creates or augments a loss, the value of the first-year allowance may be surrendered for a payable tax credit equal to 19% of the ECA value surrendered. Plant and Machinery Allowances (PMA) Split between Main Pool and Special Rate Pool (Integral Features) allowances, these are the most common form of capital allowances, claimable as writing-down allowances at the rates of 18% and 8% respectively. Special Rate Pool fixtures include items such as lighting, power distribution, hot and cold water installation and heating and ventilation systems. Our expertise ensures that all qualifying ECAs are taken in the first instance at 100% first year allowance, with the balance subject to 8% writing down allowances. Research and Development Allowances (RDA) A 100% first-year allowance available to traders on their capital costs incurred on undertaking research and development activities. Most commonly, from a capital allowances perspective, this is claimed by traders providing facilities in which R&D activities will take place. Business Premises Renovation Allowances (BPRA) A 100% first-year allowance on the capital cost of renovating disused commercial premises within specified electoral wards of the UK (as defined under the Assisted Areas Order 2007). The legislation requires that the property has been previously used for commercial purposes and vacant for at least one year prior to renovation. Further stipulations of the legislation are that the beneficial interest be held for at least 7 years and the relief is capped at 20m per project. Land Remediation Relief (LRR) Whilst not a capital allowance (the legislation falling under the Corporation Tax Act 2009), this valuable relief falls under the remit of the capital allowances surveying team. Unlike capital allowances, the relief is available to property investors and developers alike, entitling the claimant to a tax relief equal to 150% of the qualifying expenditure. Qualifying costs include the remediation of contaminated land, removal or management of asbestos from buildings and the treatment of harmful organisms and naturally occurring contaminants such as Japanese knotweed, radon and arsenic. As with ECAs, where the remediation works create a loss, the enhanced level of relief may be sacrificed in favour of a repayable tax credit equal to 16% of the loss surrendered. Claimable Values Allowance Allowance per 100k of Qualifying Expenditure Annual WDV Relief per 100k QE (Year 1) 45% Individual Cash benefit 23% CT 2013/14 21% CT 2014/15 20% CT 2015/16 P&M Enhanced Capital Allowances 100% 100k 45k 23k 21k 20k P&M Main Pool Allowances 18% 18k 8.1k 4.1k 3.8k 3.6k P&M Special Rate Pool Allowances 8% 8k 3.6k 1.8k 1.7k 1.6k Research & Development Allowances 100% 100k 45k 23k 21k 20k Business Premises Renovation Allowances 100% 100k 45k 23k 21k 20k Land Remediation Relief (Companies) 150% 150k N/A 34.5k 31.5k 30k 6

7 CAPITAL ALLOWANCES AND LAND REMEDIATION CASE STUDIES Developments Retail Distribution Centre Project Cost: 62,500,000 Capital Allowances: 13,125,000 (inc. ECAs of 8,600,000) First Year Cash Saving: 2,308,375 Motor Dealership/ Retailer Project Cost: 3,100,000 Capital Allowances: 1,310,000 (inc. ECAs of 205,000) First Year Cash Saving: 86,543 Health Centre Project Cost: 4,200,000 Capital Allowances: 1,760,000 (inc. ECAs of 97,000) Payable Tax Credit: 18,430 Shopping Arcade Project Cost: 11,600,000 Capital Allowances: 2,100,000 Contribution Allowances: 2,715,000 Residential Developer Project Cost: 308,000,000 Land Remediation Relief (at 50%): 21,040,000 Cash Saving: 2,940,000 Acquisitions Nursing Home Purchase Price: 3,600,000 Capital Allowances: 1,690,000 First Year Cash Saving: 72,501 Refurbishment and Fit-Out Data Centre Fit-Out Project Cost: 20,670,000 Capital Allowances: 19,843,200 Including enhanced Capital Allowances: 4,754,000 City of London Office Purchase Price: 33,350,000 Capital Allowances: 7,600,000 Cash Saving: 2,700,000 Office Refurbishment Project Cost: 5,700,000 Capital Allowances: 4,570,000 (inc. ECAs of 114,000) Land Remediation Relief (asbestos): 320,000 3* Hotel Allowances claimed by previous owner Purchase Price: 6,500,000 Additional Capital Allowances identified: 975,000 Conversion of Supermarket to Mixed-Use Facility Project Cost: 5,360,000 BPRA: 4,605,000 First Year Cash Saving: 2,302,500 Industrial Unit & Offices (acquired from developer) Purchase Price: 17,000,000 Capital Allowances: 4,530,000 Enhanced Capital Allowances: 380,000 Industrial Unit Extension and Refurbishment Project Cost: 1,400,000 Capital Allowances: 290,000 Land Remediation Relief: 79,000 ( 18,960 tax credit paid) 7

8 CAPITAL ALLOWANCES QUESTIONS AND ANSWERS What type of expenditure qualifies for capital allowances? A property investor can claim capital allowances on capital expenditure items that are affixed to and let with a building. A property occupier can claim capital allowances on the net capital expenditure incurred on a building in which they have an interest in land, such as a lease, or the freehold. When is it possible to start to claim allowances? For an existing business incurring expenditure in the furtherance of business activities, the allowances can be recognised in the accounting year-end in which the expenditure is incurred. For new businesses it would normally be when the trade commences. How is the value of plant determined when a property is sold? If the vendor has claimed capital allowances, the purchaser's claim will be based upon an agreed apportionment of the capital expenditure. In most cases, the value of plant within the building (which cannot be more than the cost of the plant) will be agreed by the parties and a joint election submitted to HMRC (under Section 198 Capital Allowances Act 2001). From April 2012, where the value cannot be agreed, it will ordinarily be necessary for the purchaser to go to the First Tier Tribunal ( FTT ) to get a fixed value determined. What is the impact upon the capital allowances pools when a property is sold? A disposal value will need to be brought into each pool for the value of the plant sold. Should the fixtures being sold be the only items included within the relevant pool, it is possible to accelerate capital allowances. This occurs where the disposal value is less than the tax written down value ( TWDV ). However, should the apportioned disposal value exceed the TWDV, this will give rise to a balancing charge which will increase the taxable profits. What happens from April 2012 when a property is acquired on which someone has already claimed capital allowances? As noted above, from April 2012 the seller and purchaser must either agree a disposal value or go to the FTT. Additionally, from April 2014, except in limited circumstances, it will be imperative to ensure, as part of the sale and purchase agreement, that the vendor will have agreed to make a claim, and brought into their capital allowances pools a disposal value for all eligible plant in the property. Failure to meet this requirement would mean that no allowances could be claimed going forward in respect of historic expenditure. A particular issue going forward may be the need for the purchaser and vendor to agree who is to pay for a capital allowances survey where the vendor has not previously had the allowances in the property quantified. What happens from April 2012 when a property is acquired on which the vendor has not claimed capital allowances? Where the vendor, and any previous owner, were not able to claim capital allowances because they are, say, a charity or the property is held in stock, a purchaser can claim allowances based on an apportionment of the purchase price. If an earlier owner had claimed capital allowances, the ineligible vendor will need to provide a written statement of the earlier owner s disposal value and the buyer s claim will be based on this. Where the vendor could have claimed capital allowances before April 2014 the buyer can still make a claim based on an apportionment but post April 2014 the seller will need to identify and bring into the pool qualifying expenditure. As noted above, this will have cost and legal implications. 8

9 CAPITAL ALLOWANCES QUESTIONS AND ANSWERS How do you quantify the allowances on a new build property? Where expenditure is incurred by a holder of a land interest in the property, they should analyse the costs to determine which items are eligible for plant and machinery allowances at a rate of 100%, 18% and those at 8%. Based on the trade, expenditure on certain items are normally accepted as plant. Items such as lifts, heating systems, powered ventilation, electrical systems and cold water systems will qualify at the 8% rate. HMRC also accept that some professional fees are attributable to plant and machinery installation and can then be included in the cost of that plant apportioned to the qualifying spend. How do capital allowances and capital gains rules interact? Unless there is a capital gains tax loss on a disposal of a property interest, the rules generally do not interact. Accordingly, the calculation of base cost for capital gains tax purposes will include the cost of items qualifying for capital allowances. However, where there has been a capital loss, this will be restricted to the extent of the capital allowances claimed in respect of the cost of the qualifying item. If a property was acquired several years ago, is it still possible to make a claim for capital allowances? Yes. It is possible to make an apportionment of the original cost where the previous owners did not make a capital allowance claim. Additionally, it is always possible to make a claim for qualifying expenditure incurred by the current owner on which a claim has not been previously made. However, it will now be even more important to keep careful records of capital expenditure so that the allowances can be preserved on an onward sale, perhaps enhancing the marketing or sale price of the property. From April 2014, as noted above, for any items qualifying for capital allowances affixed to a property, an eligible owner will be required to identify these items separately, and the amount attributable to each item for capital allowances (known as pooling ), in order for future purchasers to be entitled to claim capital allowances on such items. Can you sometimes get 100% allowances? Yes. It is possible to obtain 100% allowances in particular circumstances. These include qualifying plant in certain designated enterprise zones and expenditure on energysaving/environmentally beneficial plant. 100% allowances are also available for renovating certain disused business premises, and for a company/business, the first 25,000 of expenditure annually ( 250,000 from 1 January 2013). Can I claim an enhanced capital allowance on my renewable energy installations? Since April 2012, there has been a restriction on businesses that invest in plant or machinery generating electricity or heat and attracting payments from Feed-in tariffs or Renewable Heat Incentives from also claiming a first year allowance on this expenditure. If the business forgoes the tariff payments, then the first year allowance will still be available. Another change from April 2012 was the ruling that solar photovoltaic systems were reclassified as special rate expenditure from their previous main pool designation, however solar thermal installations (e.g. solar water heaters) may still be entitled to first year allowances. Can I claim Land Remediation Relief for dealing with asbestos in my office? Yes. Land or buildings are deemed to be in a contaminated state if there is a contaminant present as a result of industrial activity that is either causing harm or there is a serious possibility that it could cause harm. HMRC have confirmed industrial activity to include construction, although the risk of harm will be determined by the location and nature of the contaminant in this case, the type of asbestos. As with all claims to Land Remediation Relief, if remediation or mitigation works are required, then the costs of the associated works can be included within the claimable expenditure. 9

10 ABOUT BDO BDO UK Nothing matters more to us than our clients. All our energy is centred on giving you exceptional service. That s why we seek out and develop talented people with the imagination and initiative to make a difference for you. We ve cut out needless bureaucracy, so they can serve you responsively and flexibly. And our partners stay hands-on, leading from the front so you get the full benefit of their experience. We put the whole firm s capability seamlessly behind each client. Drawing on whatever disciplines are most relevant, we build teams of technically strong, commercially minded people empowered to think on their feet. Our systems work to support our people, not the other way around. That gives us more time to get to know you and your business so you receive relevant, intelligent advice that adds real value. BDO INTERNATIONAL As one of the world s largest accountancy networks, we offer the full range of service offerings you would expect of a firm of our calibre We not only have quality operations in the areas that are important to you now but also have quality member firms in the areas you are interested in developing into Ours is not an alliance of disparate independent firms, but a single network of offices all bound by the same dedication to client service. Our international figures include exclusive alliances of BDO Member Firms. 10

11 CONTACT For more information please contact your usual BDO adviser or: BOB MILLER Tax Partner JAMIE ROGERS Director - Capital Allowances [email protected] JOE NEWTON Senior Tax Manager - Capital Allowances [email protected] BIRMINGHAM [email protected] GATWICK [email protected] LEEDS [email protected] NORWICH [email protected] BRISTOL [email protected] GLASGOW [email protected] LEICESTER [email protected] NOTTINGHAM [email protected] CAMBRIDGE [email protected] GREAT YARMOUTH [email protected] LINCOLN [email protected] READING [email protected] CARDIFF [email protected] GUERNSEY [email protected] LIVERPOOL [email protected] SHEFFIELD [email protected] CHELMSFORD [email protected] GUILDFORD [email protected] LONDON [email protected] SOUTHAMPTON [email protected] EDINBURGH [email protected] IPSWICH [email protected] MANCHESTER [email protected] This publication has been carefully prepared, but it has been written in general terms and should be seen as broad guidance only. The publication cannot be relied upon to cover specific situations and you should not act, or refrain from acting, upon the information contained therein without obtaining specific professional advice. Please contact BDO LLP to discuss these matters in the context of your particular circumstances. BDO LLP, its partners, employees and agents do not accept or assume any liability or duty of care for any loss arising from any action taken or not taken by anyone in reliance on the information in this publication or for any decision based on it. BDO LLP, a UK limited liability partnership registered in England and Wales under number OC305127, is a member of BDO International Limited, a UK company limited by guarantee, and forms part of the international BDO network of independent member firms. A list of members names is open to inspection at our registered office, 55 Baker Street, London W1U 7EU. BDO LLP is authorised and regulated by the Financial Conduct Authority to conduct investment business. BDO is the brand name of the BDO network and for each of the BDO Member Firms. BDO Northern Ireland, a partnership formed in and under the laws of Northern Ireland, is licensed to operate within the international BDO network of independent member firms. Copyright September 2013 BDO LLP. All rights reserved.