Publish Date

Feb 16, 2021

Capital Allowances Year End Housekeeping

A&M Tax Advisor Update

For those entering year end computation season, you will at some point be looking at the Capital Allowances position to offset a proportion of the tax liability (or claim tax credits).

So what should you look out for?

As a starting point, it will be worth considering including Capital Allowances in any initial tax provisions. This will give an initial view of the impact of the relief on the tax liability.

To implement this, a first pass of the capital expenditure incurred will be required. Against this, initial forecasts of these tax allowances can be completed, allocating easily identified assets to the relevant pools.

Additional potential claims can also be identified, for example interim contract valuations which may require subsequent detailed reporting. At this point, it would be prudent to establish a timeframe for analysing this expenditure to ensure reports are completed to support the tax computation.

This exercise should also identify any acquisition expenditure or disposal receipts in the ledgers. These will act as flags to identify where elections and or statements are required and, hopefully, should already be in place.

As a checklist:

  • Collate, or execute and complete CAA s.198 elections for acquisitions and disposals
  • Obtain Structures and Buildings Allowances statements for acquisitions in year
  • Identify expenditure qualifying for short life asset treatment and complete election
  • Identify land remediation relief claims and complete elections

As a general rule, the tax payer will have 2 years from the year end in which to submit these elections, so the year to 2019 can still be considered.

Once the elections have been collated, these tax allowances can be accounted for as adjustments to the relevant pools.

Additional capital allowances may also be available from capital expenditure incurred on any acquisition. Overage claims for integral features allowances should be assessed, along with the potential to strip additional tax allowances from former Industrial Buildings Allowances claims.

At this time, it may also be worth considering collating capital allowances information for any planned asset disposals for the new fiscal year. This can be ‘kept on the shelf’ ready for the future vendor data room and CPSE replies.

One area that can get overlooked is Part 11 allowances from capital contributions. Depending on the contribution agreement and allocation of allowances between the parties, all of this expenditure may qualify for allowances, yielding a significant reduction in the tax liability.

Reference should be made to the contribution agreement prior to analysing the expenditure into relevant pools. Consideration should be given to preparing a joint claim with the other party to ensure consistency of approach and to reach an agreed allocation of qualifying spend.

A record of any claims made under Part 11 should be retained to ensure future disposals to the pool are calculated correctly, rather than wrapped up and incorrectly calculated in a disposal election.

The above points are on top of any capital allowances reporting required for development, refurbishment or fit out expenditure incurred during the year. There’s also a last call for Enhanced Capital Allowances, for expenditure incurred pre 1 April 2020.

Finally, don’t forget your Annual Investment Allowance, Research and Development Allowances or R&D Tax Credits! These will all help to reduce the outstanding tax liability for the year.