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EXCLUSIVE HMRC’s incentive to invest

Author : Stuart Rivers, Managing Partner of Stuart Rivers Associates

06 October 2014

Facilities managers overseeing the implementation of environmentally beneficial upgrades such as those involving carbon reduction and sustainable plant and equipment, can ensure their property owners benefit not only from lower energy bills but also from significant tax savings

These HMRC allowances are referred to as Enhanced Capital Allowances (ECAs) and they provide an incentive for investing in energy and water efficient technologies such as air conditioning units, heat pumps, boilers, pipework insulation, refrigeration equipment, toilets and taps. All of which qualify for 100% tax relief in the year of expenditure.

The key to maximising the benefits of ECAs, whether for existing premises renovations or new builds, is to involve design teams as early as possible. The biggest tax savings will be realised by factoring in qualifying energy and water efficient technologies that are ECA compliant from the beginning of the planning process.

For example a client who recently spent £1m refurbishing offices in Manchester was able to claim 20% of the capital expenditure on a 100% deduction due to just one ECA compliant plant item. A much larger amount however could have been realised if specialist advice had been sought during the planning stage to ensure more ECA compliant items had been specified.

New items are added annually to HMRC’s list of plant, equipment and technology eligible for allowances: It expected that later this summer air conditioning systems that incorporate active chilled beams and desiccant air dryers with energy saving controls will also qualify.

In addition to ensuring upgraded facilities are approved by the Government it is important to check that all the necessary documentation is provided with the products purchased to evidence qualifying expenditure for your subsequent ECA claim.

The 2014 budget provided further very encouraging news for property owners looking for increased tax savings with the increase in the Annual Investment Allowance (AIA). Not only has it doubled, increasing from £250,000 to £500,000 but the qualifying period for this increase has been extended from April 2014 to 31 December 2015.

It means that the first £500k of expenditure that qualifies for capital allowances – such as heating and electrical plant – will do so at 100% rather than on a writing down basis. This increase was designed as an incentive for property owners to invest so that any business incurring expenditure either buying, building or refurbishing property will benefit from tax relief on qualifying expenditure.

For example a restaurant undergoing a re-fit costing in the region of £700,000 could realise tax savings of over £70,000 (for a 20% taxpayer) which could be claimed within the first year of expenditure. Be warned though, the generosity of this particular capital allowance will diminish quite considerably at the end of 2015, and may return to a much more meagre £25,000 maximum thereafter.

For facilities managers whose portfolios include derelict or unused properties in disadvantaged areas of the country a further incentive might be of interest. The Business Premises Renovation Allowance (BPRA) provides an incentive to regenerate deprived areas. For instance this might be converting an empty warehouse into a hotel, or redundant manufacturing plant to a leisure facility.

The BPRA scheme has been extended until 2017; properties must have been empty for at least 12 months and be converted for commercial use. It is plain to see that Capital Allowances can greatly assist cash flow whilst funding upgrades and renovations large or small. Yet despite their potential, according to research by financial advisory company Deloitte, an incredible 96% of commercial property owners have not taken advantage of the available allowances and in turn have lost out on an estimated £70 to £80 billion tax savings.

While there may be many considerations to take into account when making claims, we would urge facilities managers and commercial property owners to look more closely at how Capital Allowances can help.

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