If your business is moving home, there are steps you need to take to secure tax relief for equipment fixed to the building, such as heating and lighting systems. What do you need from the seller?
New business home
The tax treatment of day-to-day business running expenses is a fait accompli and so there’s no tax planning to worry about. Your accountant will record and report the figures in line with the tax rules when they prepare your accounts and tax return. However, your actions can impact the tax outcome for some events and transactions. Moving your business to new premises is one.
What’s the issue?
Most buildings contain plant and machinery (P&M) which are fixed to the structure, e.g. heating and lighting systems. Naturally, when you buy or lease a building these P&M fixtures come with it and you’re entitled to claim a tax deduction for their cost. This is done under the capital allowance (CA) rules rather than as a simple tax deduction you would get for a day-to-day expense. The CA rules significantly affect the timing, and in some circumstances the amount, of tax relief.
Tip. It’s important to identify P&M fixtures, and their cost for tax purposes, in your new premises so you can maximise tax relief in the shortest possible time.
Finding qualifying P&M
As the new owner of a building you’re only entitled to CAs on fixed P&M where the previous owner was entitled to claim CAs for their cost, even if they did not actually do so. That is, they must have “pooled” the expenditure for CAs purposes.
Negotiations
It’s you and not your accountant who will negotiate the purchase of the property and therefore it’s you who should ask the seller for a full list of the P&M fixtures being sold with it and confirmation that they were included in their CAs pool. Trap. Without details of P&M you cannot claim CAs on the P&M fixtures sold to you.
Finding more P&M
It’s possible that the seller hasn’t identified all the P&M and so it won’t be included in a CAs pool. In that case the only way you’ll be claim CAs is to identify them yourself and inform the seller so that they can add them to their CAs pool before the sale contract is agreed.
Tip. The purchase/sale contract should include a list of CAs pooled P&M along with a special election agreeing their transfer value for tax purposes.
Finding even more P&M
If the seller occupied the building before April 2008, there’s likely to be certain types of P&M, such as water systems (known as integral features), for which they weren’t entitled to claim CAs because at the time the rules didn’t allow it. The good news is that you’re entitled to claim them even though the seller wasn’t.
Tip. If the seller was in the property prior to April 2008, survey and identify integral features. You can put your own value on these (although it must be fair and reasonable) out of the purchase price and claim CAs.
Tip. Before signing the purchase/sale contract provide your accountant with the information you have obtained about P&M. They can then take care of the technical tax side of things.
This article has been reproduced by kind permission of Indicator – FL Memo Ltd. For details of their tax-saving products please visit www.indicator-flm.co.uk or call 01233 653500.