If you are considering refurbishing your business, you may be able to claim tax relief on the costs incurred in doing so. However, it is important to bear in mind that different tax rules apply to expenditure on fixtures, alterations and repairs to your business premises. Here we outline some of the effects and the potential implications for your business.
You can claim a full tax deduction for all expenditure on repairs to your building that are incurred in an accounting period.
Alterations to a building will be treated as ‘capital expenditure’. This means that the expenditure does not qualify for a tax deduction against profits but may eventually get tax relief for capital gains tax as an ‘improvement’ to the property.
Some capital expenditure will qualify for relief. Expenditure on fixtures may qualify for relief under the capital allowances system. This may mean that your expenditure on fixtures gets immediate tax relief due to the Annual Investment Allowance (AIA) but this will depend on how much other expenditure qualifying for plant capital allowances you have incurred in the accounting period. The current limit for expenditure relieved by the AIA is £200,000 (from 1 January 2016). Prior to this, the limit was £500,000 (from 1 April 2014), and therefore if your accounting period straddles 1 January 2016, the AIA limit will not be £200,000 or £500,000 – further calculations are required. Please contact us if you are planning significant expenditure on fixtures and other plant and machinery.
Not all fixtures qualify for capital allowances but many do.
Expenditure on fixtures covers a wide variety of items, from lights and boilers, to toilets and other sanitary ware. Different types of business will require different fixtures and you should check whether your chosen items qualify for capital allowances. Contact us for more information and to find out how this can impact your business.
It may seem that both repair expenditure and expenditure on fixtures are equally valid ways of receiving a 100% tax break on your investment.
However, note the tax treatment for fixtures if you should decide to sell your business premises. Someone acquiring a property may be able to claim capital allowances on the fixtures which were put in place by the previous owner. When the transaction takes place both parties should agree on a price for the fixtures. The price can be any amount between the original costs of the fixtures when they were installed in the building down to £1. If the price is the original cost of the fixtures the capital allowances claimed by the previous owner are effectively clawed back (but the purchaser can claim on this amount). If the price is £1 the capital allowances claimed by the previous owner are effectively retained (but the purchaser can only claim on £1).
The dividing line between what is a repair rather than an alteration, and what does or does not qualify for capital allowances, can be difficult to ascertain. In addition, the rules that apply on the sale of a building which has fixtures which have qualified for capital allowances can be complex.
Careful planning can help you to maximise the relief available, and help your new‑look business to succeed. Please contact us for further advice for your business.