Occupiers of office buildings can claim substantial capital allowances but this opportunity is often missed or only partial allowances are claimed. We can work with you to maximise the available allowances either by working alongside your tax advisors or introducing a capital allowances specialist firm.
Case Study: Office Fit out
A tenant carries out a fit out of a new office for £5m including design fees. The builders’ invoices are just a series of stage payments with separate invoices for design fees and some direct payment for furniture. The tax advisor claimed capital allowances on just the furniture as this cost is segregated of £0.5m. No allowances are claimed on the plant and machinery included in the building works. A capital allowances specialist is appointed and able to segregate plant of £3.5m with the balance qualifying for Structures and Buildings Allowances (SBA’s). The extra saving for plant and machinery is £875,000 (£3.5m x 25%). The balance should qualify with further tax savings as SBA’s.
Fit Out Works by Tenants
The main reason allowances are missed on the construction and fit out/refurbishment of office buildings is because of the lack of detail in construction cost information provided by contractors. This information can consist of high level summaries of the works and it is difficult for non-specialists to break down and segregate these costs which can result in lost allowances.
Even when good breakdowns of construction cost information are available, the opportunity to maximise capital allowances claims can be missed. Accountants and tax advisors can readily identify and claim simple Plant and Machinery (P&M) items that are nicely labelled and laid out in cost breakdowns such as heating and cooling systems, lifts and electrical services.
However, often elements such as “finishes” or “demolitions & alterations” as well as associated professional fees are largely ignored and treated as ineligible for capital allowances. It is only after a site survey and further segregation and sensible cost assessments that additional allowances and repairs that would otherwise be missed can be identified. Furthermore, less obvious P&M that can often be missed in the construction of office buildings include –
- Builders work in connection with mechanical and electrical services
- Acoustic and thermal insulation within existing buildings where provided
- Demountable partitions
- CAA 2001 s.26 strip out of plant and machinery during refurbishment works
- CAA 2001 s.25 incidental costs such as works to lift and food hoist shafts within existing buildings
Full Expensing and Super capital allowances (Uncapped allowances)
There may also be scope for companies to claim 100% first year allowances for items like sanitary ware, fire alarms, demountable partitions, IT and furniture. Expenditure incurred between April 2021 and April 2023 there was 130% tax relief available.
Annual Investment Allowance first £1m (Any type of plant and machinery)
The first £1m incurred of any time of plant and machinery will automatically qualify for 100% Allowances.
Other plant and machinery Allowances 50% in year 1 balance tax relief at 6% a year
Other expenditure on plant such as AC, electrics, lifts, heating, water the allowances are 50% in year 1 with the balance written down at 6% each year on a reduced balance basis.
Asbestos Removal 150% allowances
For companies that remove asbestos there may be an opportunity to claim 150% tax relief.
Repairs up to 100% Allowances
Where an office building is refurbished, expenditure on repairs such as redecoration, like-for-like window replacement and cleaning is either not detailed or is lumped in with other costs on new installations which cannot be considered repairs. Repairs can be treated as a revenue expense and either deducted 100% in the year of expenditure or follow the accounting depreciation treatment. Typically, 10 – 20% of refurbishment works can be treated as revenue repairs if identified within the construction cost information.
Structures and Buildings Allowances – Spread over 33years
The balance of buildings expenditure can be written off and provide a tax saving spread over 33 years. As this allowance is very slow then the opportunity is to segregate into the above much faster tax allowances. Many clients are not aware that their tax advisors will lump most of the expenditure into this slow category as they do not have the records and cost breakdowns to allocate into the faster categories noted above.
Landlord Capital Contributions
Where a tenant receives a landlord capital contribution it is important that this is allocated in the agreement to lease and there may be an opportunity to make sure that the tenant does not lose the fastest allowances. If tenants fail to consider this point they can just end up with slow allowances as the landlord may have allocated their capital contribution to the fastest plant allowances.
Estimated Allowances
On office fit outs up to 75% or more should qualify as plant and machinery and repairs for tax relief. So very fast tax relief is available. The balance should qualify is SBA’s. Working with a capital allowance specialist we can provide an early cash flow of the available allowances and tax savings on your project.
Recommended Approach
It is also important to consider capital allowances during the early planning stages of office fit outs. As detailed above, construction cost information can be vague and difficult to break down for non specialists resulting in lost or slow allowances. By considering allowances early and engaging a specialist capital allowances advisor, co-ordination with your project team can result in maximising allowances.
