UK Refurbishment of new business premises

Joined
Nov 23, 2017
Messages
74
Reaction score
0
Country
United Kingdom
Can I claim the refurbishment of new business premises as part of the annual investment allowance?
 
Joined
Apr 15, 2017
Messages
7
Reaction score
1
Country
United Kingdom
Refurb costs
The tax treatment of expenditure used to refurbish buildings falls into three broad categories:

  1. Repairs, for which a full tax deduction can be claimed in the accounting period in which the cost was incurred.
  2. Alterations to the fabric of the building, which get added to the cost of the premises and taken into account in working out if there’s a capital gain when the property is sold.
  3. Fixtures, for which capital allowances (CAs), HMRC’s equivalent of depreciation, can be claimed.
The same but different
Currently, where the total of all expenditure which falls into category 3 in the same accounting period amounts to no more than £200,000 (the annual investment allowance limit), then the tax deduction in the form of CAs can be claimed on the whole amount. In effect, therefore, the tax relief obtained under 1 and 3 are the same. But possibly only in the short term.

Potential clawback
If your company decides to move premises and sells those it currently occupies, there’s a chance that some of the tax relief obtained through CAs will be clawed back. This is because where you have allocated expenditure to fixtures that qualify for CAs it’s usual to agree a value for them with the purchaser when you sell the property and send joint notification to HMRC confirming the details.The purchaser will be keen to use a high value for fixtures because they will be entitled to claim CAs on them. But because you’ve already claimed CAs on the original cost it will result in some of them being clawed back.

Example. Acom Ltd spent £25,000 refurbishing the canteen and common areas of its factory. It treated £15,000 as relating to fixtures, cupboards, kitchen units, etc. and claimed CAs. In 2015 Acom sells the factory and agrees a value for the fixtures with the buyer of £5,000. Because Acom has claimed a tax deduction (CAs) for £15,000 it will pay tax on the £5,000 it receives.

Alternative tax treatment
Had Acom treated the £15,000 as repair costs and not as fixtures, the buyer would not be entitled to claim CAs on their value which, in turn, would mean no clawback of tax relief for Acom.
 

Ask a Question

Want to reply to this thread or ask your own question?

You'll need to choose a username for the site, which only take a couple of moments. After that, you can post your question and our members will help you out.

Ask a Question

Top