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Capital Allowances Consultation

Important Changes to Rules on Claiming for Plant Fixtures

 

On 31 May 2011 HM Revenue & Customs (‘HMRC’) issued a consultation paper proposing major changes to the rules that permit capital allowances claims for plant and machinery fixtures.  This will affect all property owner-occupiers and investors.  The consultation process closes on 31 August 2011 and the changes are intended to take effect from April 2012.

Current Rules

Currently, there is normally a, broadly, two-year window to make a capital allowances claim.  However, the flexibility exists to claim the capital allowances claim in any later year’s tax return, as long as the plant is still owned in that later tax year.  This is a longstanding and uncontroversial principle. 

 

The capital allowances claim is generally calculated using a ‘just and reasonable apportionment’ of the money spent.  This is a specialist tax valuation exercise routinely undertaken by The Capital Allowances Partnership Limited.  However, the amount claimable may be restricted by past claims made by previous owners of the property.

Proposed Changes

 

In HMRC’s view there has been an increase in property buyers making substantial late claims for plant fixtures, encouraged by certain capital allowances ‘specialists’ who have made little or no attempt to properly check the capital allowances history of the property.  This has led HMRC to conclude that the capital allowances are wrongly being claimed twice (by different taxpayers at the same time), which has the potential to cost the Exchequer significant money.  However, HMRC lacks the resources and records to track and control this issue.  So it is, in effect, seeking to protect the Exchequer by changing the rules in its favour.

Mandatory Pooling

HMRC proposes forcing all taxpayers to claim capital allowances within one year (or possibly two) of when the money was spent, or no capital allowances claim will ever be allowed.  This will apply to all new construction expenditure (eg, new-builds, extensions and refurbishments etc.) as well as purchases of second-hand property.  Historic expenditure made before April 2012 is also likely to be subject to the rules.

Record of Agreement

In tandem, when a property changes hands HMRC proposes forcing taxpayers to submit a formal ‘Record of Agreement’ (‘ROA’) showing how much of the purchase price relates to plant fixtures.  This is intended to broadly mirror the existing ‘section 198’ election mechanism (which is optional, not always technically possible, and allows a buyer and seller to agree the value of plant fixtures transferring between them).  HMRC suggests that the minimum amount for a ROA would be the seller’s tax written-down value (that is, the balance of their expenditure that has not yet been written-off for tax).

What Action Should You Take?

 

Where no capital allowances have been claimed or it is suspected that capital allowances might have been underclaimed taxpayers should consider promptly obtaining expert advice to investigate and submit any additional claim before the rules change in April 2012.

 

Contact The Capital Allowances Partnership Limited immediately for free-of-charge and no obligation initial advice, tailored to your needs.

 

View and save Important Changes to Rules on Claiming for Plant and Machinery Fixtures as a PDF document.

 


 

Tags for this article: capital allowances, plant and machinery, fixtures, HMRC consultation, mandatory pooling, record of agreement

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