How to Maximise Capital Allowances in Property Refurbishments and Constructions

A Grand Design

Much like the tax landscape, great construction projects often come with great changes. ESG requirements, record interest rates, and rising energy costs make it more important than ever before to make every penny count.

Most build projects evolve over time between when contracts are agreed and practical completion. Market changes, project delays, and contract variations play a pivotal role over the course of a commercial project.

What we must understand is that no refurbishment or construction is the same, and a deeper understanding of the costs incurred on a granular level is required to provide the optimal opportunity for tax efficiency.

A detailed breakdown of costs, such as a Contract Sum Analysis (CSA), serves as the cornerstone for maximising capital allowances. A collaborative and investigative approach between a capital allowances adviser and client will ensure nothing is missed when gathering detailed cost information.

At Ryan, we place ourselves at the centre of our clients’ commercial project network, involving many different lines of communication, where required, to ensure the gathering of a project’s capital expenditure quantum is as painless as possible whilst leaving no stone unturned. This includes accountants, project managers, architects, and other building contractors.

Historical Evidence

The most common issue I find when assessing a commercial property portfolio for capital allowances is a lack of good records kept over time. Reliable and detailed recordkeeping is paramount when it comes to analysing build cost information for commercial property refurbishments and constructions. The significance of such practices for both clients and accountants can be a difference of thousands of pounds to anyone undertaking such projects.

If a company spends hundreds of thousands (or millions) of pounds on a project, you would think they know where that money has been spent, right? In my experience, it is surprising the number of businesses that do not have this information, which can lead to them missing out on the full value of tax incentives.

The two main pillars supporting a successful capital allowances evaluation are:

1. Evidence that no prior capital allowances have been claimed on the specific expenditure

The tax return will show the total amount claimed, but this does not detail whether a claim has been maximised. This may only include loose trade items, vehicles, or office equipment. The tax computation is the crucial document needed as this will break down, in more detail, what has been claimed, drawing a distinction from the unclaimed expenditure in the accounts.

2.  Evidence of the expenditure incurred in as much detail as possible

The whole cost of the project from start to finish, including professional fees. We reconcile these with the asset additions to confirm that they have been treated as capital expenditure, which forms the foundation of the analysis.

Here are four basic tips I always provide to my clients:

• Keep cost schedules and final accounts, even after the project has ended.
• Take photos of paper invoices/contracts before destroying them.
• Keep tax and accounting documents for more than the standard six years.
• If you change accountants, ensure they provide you or your new accountant with copies of asset schedules and tax computations – these could be the missing piece to validate a claim.

Given most companies are moving to the cloud for document storage, it is easier than ever to ensure these routines are adhered to.

Avoiding Missed Opportunities

While it is nice to dream of the perfect scenario, we must also understand that in practice, given the obstacles mentioned earlier, it is not always possible to break down every cost.

In the absence of detailed cost breakdowns, and in tandem with a forensic site survey, it is possible to use capital allowances expertise and an extensive backlog of cost models to apportion the final costs appropriately against a project of comparable size. This is an HMRC-accepted approach to calculating capital allowances, which provides a just and reasonable representation and prevents valuable capital allowances being overlooked.

For multiple concurrent projects, it is important that costs for all projects are not lumped together; keep costs separate per property, and this will ensure the capital allowances can be maximised. Similarly, where multiple entities engage in a project, for example where the ownership structure includes a holding company and an operating company, it is important to seek the correct advice when addressing capital allowances.

Final Word

In conclusion, good recordkeeping and detailed cost breakdowns are indispensable for maximising capital allowances tax relief and paving the way for the next exciting project. It is important to engage a specialist as early as possible with every project, providing you with an expert at each stage.

If you have any historical, ongoing, or upcoming projects on your commercial property portfolio that you feel would benefit from a forensic capital allowances appraisal, please get in touch by completing the form below.