Capital Allowances: Construction Projects

When undertaking a commercial development, you should consider the tax implications from the outset. By doing so, you have the opportunity of obtaining a much-needed cash flow advantage which can assist with funding the development, improving the initial return on investment and lowering the risk for those providing any loan finance.

New builds, refurbishments and fit-outs have certain nuances which can impact the level of capital allowances available. Capital allowances are a form of tax relief that can be claimed on various types of qualifying expenditure incurred during a construction project. They offset construction costs by reducing your taxable profits, which can lower how much Corporation Tax or Income Tax you need to pay. In addition to plant and machinery allowances and the structures and buildings allowance that can help you to save when building or refitting a commercial property, the intended use can greatly determine the level of capital allowances available.

This can be complicated without expert support, but by speaking to a capital allowance expert from Monetta, you can start the process of building or refurbishing a commercial property in the most tax-efficient way possible. Get in touch to learn how we can help you to claim capital allowances and maximise your tax savings. Call your local Monetta office or use our online enquiry form to request a call back at your convenience.

How Monetta Can Help

Early consideration of claiming capital allowances will enable your advisor to obtain sufficient detail from a motivated contractor and design team. It would also allow you to seek clarification on certain aspects of the design and construction, and whether or not they represent qualifying expenditure. This is where Monetta can help.

If you instruct us at your earliest opportunity - ideally, from the start of the project - we can:

• Work with designers to advise on the items that they include within the design, to maximise the tax benefits;
• Give an ongoing review of change orders and variations;
• Analyse any strip-out and demolition costs from existing buildings to determine whether any items are claimable; and
• Produce reports for individual year ends if the construction project spans a number of years, allowing the company to utilise the tax relief earlier.

Key to providing a compliant capital allowances claim is to ensure that the correct forms of capital allowances are claimed, from plant and machinery allowances, to integral features and structures and building allowance. Our advisors can identify all of the qualifying expenditure incurred during your project, and make sure you claim capital allowances to the maximum extent possible. When your project exceeds a single accounting period, we can guide you on when you should claim your capital allowances to maximise their value - for example, by taking advantage of annual investment allowance or other relevant tax relief opportunities.

How We Approach Identifying Capital Allowances

To realise the maximum benefit when undertaking these projects, you should ensure that your construction team is aware of the type and level of information that will be required, and that these are included in any contractual arrangements with them. Consider the possibility of claiming capital allowances when reviewing and valuing engineering proposals, and ask whether your construction team has incurred expenditure repairing or improving items, which could entitle you to claim. If you are able to identify costs associated with the works incidental to the installation and removal of plant, you may be entitled to claim plant and machinery allowance on top of any structures and buildings allowance you qualify for.

This is best done in association with a capital allowances advisor, as there are several nuances when considering capital expenditure on a construction project. Some of these are as follows:

Works incidental to the removal or installation of plant

When looking at expenditure on an existing property, whether it is a refurbishment or fit out, it may be possible to include works incidental to the removal or installation of plant. An example of incidental works could be the installation of a lift shaft, which does not qualify on a new build but can do if it relates to a retrospective installation of a lift on an existing property.

Removal of contaminated land  

Land remediation relief is another form of tax relief available on construction projects. This is particularly the case on construction on a brownfield sites or the refurbishment of existing property where a previous owner or occupier provided an installation that subsequently became a contaminate. An example of this could be asbestos, the removal of which could lead to the enhanced relief.

Capital contributions

Whether a landlord or incoming tenant, you should be interested in how the capital contribution is treated, not least because it can lead to the possibility of a double claim. In addition, each party has the ability to negotiate where the capital contribution should be allocated in order to ensure they have the best tax position.

Grant funding

It is great to receive funding on any project.  However, it is often possible to determine where the funding should be allocated. In one recent example, during the grant funding negotiation stages of a project it was agreed that the whole grant was to be allocated to the provision of the land. This meant that none of the grant would be allocated to the plant and machinery allowance.

Year-end claims

Given that full expensing can only be claimed in the year the expenditure was incurred, it is important to ensure, with projects that span over a number of financial year-ends, that you identify the capital allowances relevant to the year-end.

How Much Are Capital Allowance Claims Worth?

Whilst capital allowance levels can vary significantly from project to project, below is a table of results achieved on previous reviews.

	Mid-point of capital allowances range
	Construction/extension	Fit out/refurbishment
Warehouse or distribution centre	30%	68%
Retail unit	20%	65%
Office	40%	60%
Hotel	40%	75%
Care home	48%	75%

 

The key to providing a correctly maximised capital allowances report is information. Therefore, engaging with the design team, including the contractor, can be vital to producing an accurate and compliant report. Very often when we are engaged after the contractor has left the site, they are not so willing to divulge the cost information and breakdown of the work that we would require. In turn, this requires alternative approaches to compile a report. As such, it is best to work with our team at the earliest stage of the process if you are planning on claiming capital allowances later.

Why Choose Monetta?

At Monetta, we recognise that every project is different. We take the time to understand the full breadth of your commercial aspirations and, by understanding what you want to achieve, we can tailor our services to meet your needs. We take the approach you would expect from any local firm, but with the resources to scale thanks to our network of offices throughout the North West.

Along with advice on claiming capital allowances, we can support you to maximise the tax efficiency of any commercial property project across all of the available channels. For example, careful deal structuring can also help to minimise Capital Gains Tax liability when buying or selling commercial property. Businesses should consider not only the possibility of making a capital allowance claim in the early stages of a project, but how they can maximise tax savings and profit throughout its lifespan.

Whether you are concerned about claiming on construction expenditure, or are simply looking for ways to increase the market value of your property, speak to our team today to learn how we can help.

Contact Us

Tax liability can be significant when refurbishing a commercial property, let alone for construction projects. As such, you should not miss an opportunity to claim tax relief or take advantage of capital allowance claims to minimise your tax burden. Contact Monetta for advice on qualifying expenditure, identifying your total qualifying costs, and producing an allowance statement or filing an Income Tax or Corporation Tax return in compliance with UK tax laws.

Call our expert capital allowance advisors today at your local Monetta office, or use our online enquiry form to request a call back. Alternatively, visit our team page to find out more about our experts.​​​​​​