If you have invested money in buying or constructing a care home – or maybe in refurbishing or extending an existing home – capital allowances offer valuable tax relief for the costs.
In many cases, full tax relief can be given for the costs immediately, improving cash-flow and perhaps allowing for ongoing reinvestment in the facilities.
The value of a correct claim
For care homes, the allowances are worth even more than for most other businesses. This is because care homes are technically complex buildings, containing large amounts of plant and machinery, on which the most valuable allowances can be claimed.
Claims are rarely missed for moveable items – beds, tables, chairs and so on – but it is common for claims to overlook many of the other items, where in reality most of the value of the claim lies.
Like other businesses, care homes have all the usual costs of electrical wiring, heating and lighting, hot and cold water systems. But care homes also typically incur substantial amounts of expenditure on items such as showers, baths, basins, toilets, alarm systems, hoists and lifts, nurse call technology, kitchens, etc.
Buying a home
If you buy an existing home, you can typically claim for all of these items, perhaps claiming for up to 30% of the purchase price, but the mechanics of the claim vary.
To guarantee the best possible outcome, it is essential to negotiate with the vendor before completing the transaction.
If that has not been done, a valuable claim may still be possible after the event, sometimes even many years later. However, more variables then come into play.
Building, extending, refurbishing
If you are improving an existing home, you can likewise claim for all of these items, which will together represent a high percentage of the overall construction costs.
If you paid for the work some years ago, the rate of tax relief will be slower, but a full retrospective claim is still possible as long as the items remain in place when the claim is made.
Even if the paperwork is less than ideal, an experienced specialist can extract the correct figures to create a claim that is fully defensible in the event of HMRC enquiries.
Problems with claims
A capital allowances claim is not provocative to HMRC as long as it is properly made. But there are many ways in which claims can go wrong.
Some claims are too high, or even wholly inadmissible. This can mean additional tax to pay, and maybe also interest and penalties. Furthermore, the problems can multiply over time, as HMRC can review a claim for up to 20 years, making a so-called discovery assessment, with catastrophic results for a business.
Conversely, though, many capital allowance claims go the other way, failing to give relief where it is due. This can cost the business many thousands of pounds in additional tax burdens that are not necessary.
So a business should always be seeking the best legitimate claim, rather than necessarily the one that promises most.
Why problems arise
The reason for these problems is that capital allowances are a complex area of tax law, governed by their own special legislation (the Capital Allowances Act 2001). With proper knowledge of that legislation, both of these risks can be managed and avoided.
Nowadays, of course, there is also a temptation to rely on AI to give all the answers, but despite the brilliance of the new technology in many spheres, it is still a long way off being able to cope with the complex permutations that capital allowances law can produce.
When do I save the tax?
In many cases, a business can obtain immediate tax relief (by way of “annual investment allowances” (AIAs)) for up to £1 million of qualifying expenditure per year.
Where AIAs are not available, which can arise for a variety of reasons, tax relief is spread out over many years. The rate of relief in the first year may be anything from 100% of the qualifying expenditure (“first-year allowances”) to 14% or just 6% (“writing-down allowances”). [NOTE: 14% is now the standard rate, having been reduced from 18%]
Some expenditure will not qualify at all for these more valuable plant and machinery allowances, and for such expenditure it may be possible to claim structures and buildings allowances (SBAs). These allowances have different rules and give slower relief at just 3% of the cost per year.
How we can help
At Six Forward, we work with capital allowances claims all the time. Our first step is always to check whether a legitimate claim can be made, so as to avoid problems with HMRC.
So why not let our team take a look and give you an honest appraisal? Our review won’t cost you a penny, and you will be under no obligation.
If no allowances are due, we will explain why not.
But if there are opportunities for you to save tax, we will spell out how it will work. If you then choose to instruct us, we will work alongside your existing accountant, providing the exact details to include on your tax return, and explaining the full legal basis on which the claim can be made.
