There are 4 main areas of concern for HMRC with any Capital Allowances (CA) claim; entitlement, credibility, quantum and eligibility.
Entitlement requires careful consideration of the tax history and appropriate valuation basis. Also considerations of the nature of trade and specific expenditure.
Credibility issues can be reduced by submitting a fully detailed, cross referenced, well supported and fully explained claim.
The quantum aspect will be particularly relevant on property purchase price allocations but will also apply to expenditure claims. Tax Inspectors are used to seeing individual detailed invoices to support amounts such as computers and furniture. However on construction projects the individual invoices typically just state ‘stage payment application ‘ with no detail of individual assets. It is important to explain the construction invoicing process and how costs are collated and to show as clearly as possible how the figures in any claim have been derived.
Dealing with queries over eligibility may be more subjective. There are clearly areas of uncertainty in capital allowances legislation and case law applying to CA claims and it is important that there is a clear justification behind any item included in a claim.
When dealing with HMRC there are a number of issues that will influence how to proceed in any negotiations.
- Capital Allowances will probably only be part of an overall enquiry and could be influenced by the overall relationship between HMRC and the Taxpayer.
- The quantum of tax at stake in relation to the overall tax burden of the Taxpayer may have a bearing.
- The experience of the individual Tax Inspector or CRM in dealing with Capital Allowances.
- The issues raised will be affected depending on whether or not the Valuation Office Agency (VOA) are involved.
If there is a challenge on eligibility Lovell Consulting have found that the most effective way to proceed is one round of correspondence so that reasons can be clearly stated as to why any item should be considered as eligible, then ideally a round table face to face meeting to discuss and hopefully resolve.