Clients generally assume that their accountant or tax advisor deals with capital allowances. In fact some clients will ask their accountant if they claim allowances and they will respond that they claim all available allowances. However, as explained below, this can be misleading and they are doing their clients a disservice by not referring them to a capital allowances specialist. Many accountants recognise this limitation and will openly recommend and advise their clients to take specialist capital allowances advice when expenditure is significant or complex.
The approach taken by an accountant to claiming allowances is typically a desktop invoice review. Accountants are not generally trained in assessing building costs or comfortable with making assessments where building invoices provide no detail. In contrast, a capital allowances specialist surveyor will visit the property and be able to make detailed and reasonable assessments of costs qualifying for capital allowances.
Accountants do the best job they can often with limited time and limited information. This is normally because their clients do not have or are unable to provide them with the necessary details and very often just provide sparse summaries a few days before the tax returns need to be filed with HMRC.
A specialist like Lovell Consulting will approach the claiming of allowances differently to an accountant;
. Lovell Consulting will visit the property, make surveying assessments and collate all available necessary details by carrying out a forensic exercise and collating information from a variety of sources and databases.
. Lovell Consulting will work alongside your existing accountant and will not replace or duplicate what they do. A detailed report will be provided which will then be included by your accountant in the tax return.
- An accountant will classify fixed assets into the accounts’ separate categories. Typically, FF&E (furniture, fittings and equipment), includes only loose items such as furniture, computer equipment, moveable equipment and trade related kit; with buildings additions included in freehold land and buildings or leasehold improvements. In many cases, the accountant will claim FF&E in full but not analyse the freehold buildings or leasehold improvements category. These categories can be where most of the expenditure is incurred and frequently they make little attempt to analyse based on the limited information provided by the client.
- An accountant will list and claim allowances on items like computer equipment, desks and printers, as these are clearly used in the trade. Often the embedded floor boxes for telecoms and computer power supplies are unclaimed as these costs form part of the property purchase or fit out contract. A specialist is able to extract these costs, itemise and give them an appropriate value.
- An accountant will understand how to claim a hotel’s furniture and loose equipment. A capital allowances specialist will be able to identify all ambient features such as decorative items; and in addition all items integral to the hotel building which are used in the business, for example thermal insulation, central heating and lighting.
- An accountant will list and claim all gym equipment and loose fittings in a sports centre, but may not claim sprung floors or builderswork in connection with floor strengthening to support gym equipment. These items will need to be valued and appropriate description given for a claim to be made.
- A capital allowances expert with construction knowledge for similar property types will know what to look for and what items are typically present. They will find, quantify and value these items based on a site survey. This more in-depth approach can yield tax savings many multiples of the fee.
Consequently it is true that accountants will claim some routine capital allowances, but they are likely to miss the less obvious expenditure. Typically Lovell Consulting are able to increase capital allowances 30-50% more than an accountant by detailed analysis and inspection of the property. This is particularly relevant to those occasional yet significant capital expenditure projects such as property purchases and refurbishments. Furthermore a fully detailed report is completed which can then be quickly agreed with HMRC if any points are queried. In contrast, some tax advisors can see this as an opportunity to charge substantial fees dealing with HMRC and end up achieving less allowances and charging a higher fee to resolve any HMRC enquiries