Introduction
Nursing homes have substantial imbedded plant and machinery (P&M) items and repairs. However the less obvious items often get overlooked by accountants and tax advisors.
Why does this happen?
There are many obvious items of plant such as loose furniture and fittings which accountants can easily identify and segregate to allowances. However there are additional imbedded trade related items of P&M that are harder to identify. It requires a specialist to breakdown these costs and separate qualifying and non qualifying items.
Most new build nursing homes use design and build contracts for construction. The by-product of choosing this procurement route is the lack of detailed cost information. Typically clients will only receive a high level summary sheet of costs with no further details such as description “Carpenter”. To maximise total allowances by breaking down and allocating values to P&M from high level figures, a specialist with both tax and surveying knowledge is ideally required.
For instance carpenter may include fixtures and fittings joinery items which are qualifying as well as non qualifying skirting. This distinction can predominantly only be identified by specialists who can correctly segregate costs.
Typical P&M within Commercial Properties
Some examples of qualifying P&M that are found in nursing homes include carpets, security alarms, lifts and hot and cold water installations.
Unusual P&M within Nursing Homes
There are further qualifying items of P&M that are predominantly found within nursing homes. Significant additional allowances can be obtained. Examples include:
- Trade drainage
- Dado mobility rails that are usually not clearly distinguished in cost documents
- Specialist sluice and sanitary equipment
- Specialist dementia equipment
- Safety equipment such as window restrictors
- Builders work in connection with mechanical and electrical installations
- Machinery to automatic entrance doors
Enhanced Capital Allowances (ECA)
The government has actively encouraged businesses to be more environmentally friendly. The introduction of ECA has provided business owners a greater incentive to promote their energy efficient credentials.
If items of P&M meet the Carbon Trust’s energy efficiency criteria, the full cost of these items can be written off in the first year providing 100% tax relief. The alternative would be (in most cases) tax relief at 8% per annum on a reducing balance basis.
For nursing homes, where construction of modern new build homes could cost in excess of £3 million, the cash flow benefit to install ECA compliant plant is quite significant.
For example newer nursing homes could have qualifying combined heat and power systems. These systems are expensive to install and maintain. Yet the whole system can qualify for ECA but it requires pre-registration with the Department of Energy and Climate Change. For the uninformed taxpayer, this process can be difficult to navigate. A specialist can help with this to ensure ECA can be fully maximised.
Other examples of P&M that can attract ECA include LED light fittings, heating and cooling systems and electric hand dryers.
Repairs
Where a nursing home is refurbished, expenditure on redecoration and roof repairs is often not nicely segregated. A specialist can carefully segregate to exclude improvement expenditure. For a nursing home refurbishment there could be 30% or more expenditure that qualify as repairs. It is important for repairs to consider the accounting treatment at an early stage.
Nursing Home Capital Allowances Benchmarks
As shown there is great scope to identify additional allowances in nursing homes. It is reasonable to expect 20-40% of the purchase price of the home to be allocated to plant and machinery allowances (PMA), depending on the prior tax history. This will substantially increase if a refurbishment or fit out has been undertaken where 70-90% of total expenditure may qualify for PMA and repairs.
Recommended Approach
It is recommended to use a specialist capital allowances firm to extract all the available allowances. Lovell Consulting can identify the hidden gems as well the slightly more unusual items of qualifying plant.
We can also add significant value where information is missing or difficult to obtain. As a dual qualified team in tax and surveying, we are able to break down costs and value qualifying items. This means that it is not necessary to have perfect information.
