Fixtures – the essential starting point for Capital Allowances claims

Capital Allowances cut tax bills (saving income tax for sole traders or partners, corporation tax for companies). For those with commercial properties, the tax savings come mainly from identifying “fixtures” in a property.

 

Sara’s sushi situation

Suppose, for example, that Sara runs a sushi restaurant. The business is going well so Sara is paying tax at 40%. She spends £45,000 to build an extension to the restaurant, and a further £3,000 fitting out the extension with new tables and chairs.

  • The chances are that the £45,000 will end up in the accounts under a heading such as “additions to property”.
  • The £3,000 will probably be shown as “fixtures and fittings”.

The treatment of the £3,000 is easy enough; Capital Allowances will normally be claimed without any difficulty. But Sara should also be claiming tax relief on part of the £45,000, and this element is often missed in practice.

 

Chopping it up into bite-size chunks

The difficulty, then, relates to the cost of the extension.

  • Sara cannot set the entire amount against her income tax bill, but she can claim for the part of the £45,000 that relates to “fixtures” in the extension.
  • Let’s say that the cost of these fixtures is £25,000 (just over half the total in this example). Sara can claim immediate tax relief at 40% on the £25,000, saving herself £10,000 in income tax.
  • This reduces the real cost of the extension from £45,000 to £35,000, a saving of more than 20%.

This is not just a legal nicety! It is all too common for Capital Allowances to be claimed on the “fixtures and fittings” but not on any of the “additions to property”. So, the real risk is that no claim will be made for the £25,000.

 

Capital Allowances confusion

The problem stems from confusion over what we mean by “fixtures”. Nothing in the field of Capital Allowances causes more difficulty than this simple point. The reason for the difficulty is that the term has a specialist meaning for tax purposes which is different from the meaning used by accountants generally.

 

When is a fixture not a fixture?

For Capital Allowances purposes, “fixtures” (on which allowances can be claimed but are often missed) include hot and cold-water systems, heating and ventilation systems, all the lighting and electrical costs, toilets, sinks, basins, fitted kitchen equipment and lots more. Yet all of these items may (properly) be shown in the accounts as part of the property rather than as fixtures and fittings.

 

The taxman won’t tell you

So, if Capital Allowances are only claimed for items identified as fixtures and fittings then the claim may be far less than is permitted. The taxman will never say “you have not claimed enough tax relief” so it is entirely down to the business owner and his or her accountant to identify and claim the extra tax breaks.

 

The real technical bit

In technical terms, “fixtures” have a legal definition for Capital Allowances purposes (given at s. 173 of the Capital Allowances Act 2001). The term covers “plant or machinery that is so installed or otherwise fixed in or to a building or other description of land as to become, in law, part of that building or other land”. Nearly every property contains substantial numbers of fixtures, covering everything from boilers and radiators, to electrical and water systems, to toilets, carpets and lifts.

You can watch a short YouTube video, in which I explain this concept more fully, here.

 

Two key points of practice for accountants and tax teams

  1. There is a rule of thumb for identifying whether allowances have been under-claimed wherever a property has been bought or an extension built. You will need to see both the accounts and the tax computations for the year in which the costs were incurred.
  2. Check the figures in the accounts for “additions to property” or “buildings” (or some similar heading) and check the figures for “additions to fixtures and fittings”. For the same year, look at the figure for “additions” in the Capital Allowances computations. That figure should be much higher than the figure in the accounts for “fixtures and fittings”. If it is not, it may well be that insufficient allowances have been claimed, as part of the cost of the property will also qualify for tax relief.