BDO’s capital allowances team explains how a detailed review of your capital allowances can help reduce current tax liabilities. Considering prior years’ expenditure, where capital allowances may not have been claimed or fully reviewed to maximise the allowances available, could boost your cash flow by generating tax repayments.
With COVID-19 having such a significant impact on manufacturing businesses, it has never been more important to focus on your cash flow. One area that should be considered is making sure that you can claim all the tax allowances and reliefs available to reduce the outflow of cash in tax payments or perhaps even raising cash through tax repayments.
Often during very busy periods, companies and individuals have not had the time to fully focus on some areas of tax compliance; alternatively, other tax deductions may have been available that limited the need to carry out a thorough review. Therefore, businesses may wish to review the approach they have taken to capital allowances in the past and consider if there is scope to improve their existing position, reduce the income or corporation tax now due or to generate repayments.
Timing of a claim
Following the review of prior years’ expenditure, an amendment of a tax computation and return can trigger the repayment of tax that has been paid in a previous period to reclaim the associated income or corporation tax paid. There is no time limit on the opportunity for claiming capital allowances for assets that are still owned and it is possible to bring any additional qualifying expenditure available into any tax year that is still open or available for amendment.
BDO’s dedicated specialist capital allowances team have significant experience in the manufacturing sector, providing specialist support to benchmark levels of qualifying expenditure and to maximise the allowances available. The team have undertaken many current and retrospective reviews and are experienced in agreeing positions with HMRC.
Which businesses could benefit?
Any businesses that have incurred capital expenditure on assets (particularly buildings or structures – including the acquisition, construction and refurbishment or fitting out of properties for occupation or investment) could benefit by carrying out a review.
Some specific points to consider include:
Have you purchased, built or extended a property and have yet to investigate the potential capital allowances position? This may be recent or historic
Have you had to undertake any works to your property to accommodate new machinery or service lines, or make changes to meet new industry operating or health and safety guidelines?
Have you encountered contaminants on your site during development works, such as asbestos linings within the building, hydrocarbons or heavy metals in the ground, or Japanese knotweed, etc.?
If you already claim capital allowances for on-going expenditure, when was your claims basis last reviewed? Recent changes in legislation may be beneficial
Is the business making best use of any enhanced investment reliefs whilst they remain high, such as the current £1m Annual Investment Allowance?
Do you undertake R&D using specific machinery or areas within the property for this work? This may attract the 100% research & development capital allowance (not to be confused with, and in addition to, the R&D tax relief for the operating costs of undertaking this work)
Have you incurred expenditure on energy-saving or environmentally-beneficial fixtures, such as LED lighting, efficient boilers, or motors within equipment. These may attract a 100% first year allowance (or potentially a tax credit where the company is loss-making)
BDO is an international network of public accounting, tax and advisory firms which perform professional services under the name of BDO. BDO’s capital allowances team can undertake an initial review to identify any opportunities to claim additional allowances to help improve your cash flow.