In one sense, the end of the tax year in April has no direct relevance for capital allowances claims. Nevertheless, many accountants focus at this time of year on an annual review of tax issues, and capital allowances should certainly form part of such a review in relevant cases.
Statutory references below are to the Capital Allowances Act 2001.
What is the technical background?
No allowances may be given unless a claim for allowances is made (s. 3).
With certain exceptions, any capital allowances claim must be included in a tax return, and this principle overrides the usual claims legislation as it applies for other tax purposes.
As all readers will be aware, the deadline for submitting income tax returns is 31 January following the end of the relevant year of assessment. For corporation tax purposes, the submission deadline is 12 months after the end of the accounting period. In each case, a further year is allowed for amending the return.
For this reason, 5 April is not a relevant deadline as such for capital allowances purposes. However, missing a capital allowances deadline can lead to the permanent loss of relief, or to a severe restriction on the timing of that relief, so a periodic review is essential.
Common timing risks for capital allowances
There is no definitive list of timings risks, but we focus below on three real issues that we come across from time to time.
Can it be too late to claim at all?
In one sense, the capital allowances rules are generous in terms of the timing of making a claim.
If you are sitting at office desk and you realise that you did not claim capital allowances when you bought it ten years ago, you cannot reopen the accounts from all those years ago. However, you can still submit a claim for the current period of accounts, as long as you still own the item at some time in the year for which you first make a claim (s. 58(4)). There are, though, two disadvantages:
- First, of course, there is the simple cashflow issue, in that the tax relief has been delayed.
- Second, the claim that is made now can only be for writing-down allowances. This is because any claim for annual investment allowances may only be made for the year in which the expenditure is incurred ( 51A(2)). The same restriction applies for first-year allowances, including full expensing (s. 52(2)).
By including capital allowances in any annual tax review, these oversights can be rectified in time to make an optimal claim.
What about buying property?
The position is a whole degree more complex, and there is invariably far more at stake, when commercial property is being bought. Failure to act in a timely manner can lead to a permanent loss of tax relief, with the taxman as the only beneficiary (see, in particular, s. 187A). In this scenario, an annual tax review may offer a last chance to rectify things that have not been done correctly.
In reality, though, commercial property should never be bought or sold without first taking specialist capital allowances advice on the issues involved.
As the buyer’s claim can be wholly dependent on actions taken by the vendor, it is necessary to commit the vendor to appropriate actions as part of the sale and purchase agreement, i.e. as a condition of purchase. And as the buyer’s entitlement to claim can even depend on actions taken by previous owners before the current vendor, a thorough review is essential to ensure that the claim is robust and secure.
At Six Forward, we begin every claim by making a thorough review of whether there is entitlement to claim, as everything else follows from that: there is no point calculating potential savings if there is a legal bar to making the claim in the first place.
Timing of expenditure
We end with a quick reminder of the rules about when expenditure is treated as incurred for capital allowances purposes, such that a claim can be made.
The general rule is that expenditure is treated as incurred as soon as there is an unconditional obligation to pay it, even if some or all of the expenditure does not have to be paid until a later date (s. 5). So if a business commits to buying an item before the year end, but pays for it early in the new accounting period, a claim for the earlier period may be possible. Again, this may usefully be picked up as part of an annual review.
There are various caveats to this general rule. For example, the contract may say that the order cannot be cancelled once placed, but even so the obligation to pay may be conditional upon the goods actually being delivered. And if payment is due more than four months after the unconditional obligation to pay has come into effect then the expenditure is only treated as incurred at the actual payment date. Other exceptions to the general rule also apply.
Once more, we can advise on all these aspects at Six Forward as part of our comprehensive capital allowances service.
How does an annual review assist with year-end tax planning?
An annual review helps ensure that all qualifying capital allowances are identified, both for past years and the current year. This includes checking that previous claims were correctly made, and that current-year expenditure is properly recorded. Conducting a review before the end of the tax year allows you to optimise your tax position and plan ahead for the next financial period.
Can I make a claim if I missed the opportunity in previous years?
Yes. If you still own the asset, it is usually possible to make a retrospective claim for writing-down allowances. However, delayed claims give a disadvantage in terms of cash flow, since the tax relief is deferred, and mean that the opportunity to claim annual investment allowances or first-year allowances is lost. In some cases, failing to claim in time can lead to a permanent loss of capital allowances.
What is the benefit of preparing for the end of the tax year?
Although 5 April is not a formal deadline for capital allowances claims, proactive planning ahead of the end of tax year allows you to gather all necessary documentation, confirm which assets are eligible for capital allowances, and structure your tax return correctly. By planning throughout the year, you can confidently make claims without the added pressure of a deadline you are unprepared for.
Why is it essential to secure capital allowances agreements during a property sale?
When purchasing commercial property, your right to claim capital allowances can depend on the previous owner correctly identifying and pooling qualifying fixtures. If the previous owner did not provide proper documentation, relief may be permanently lost. Working with a specialist before contracts are exchanged can completely eliminate this risk, protecting your tax position and the value of your investment.
For sellers, too, failing to address the capital allowances issues can have serious tax consequences.
How does the timing of my payment affect my capital allowances claim?
Capital allowances are generally available when expenditure is incurred, not necessarily when payment is made. However, there are some specific rules that must be considered. For example, if your payment is due more than four months after the obligation arises, or if the obligation to pay is conditional upon delivery, the date the expenditure is treated as incurred may be delayed.
