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‘Taking Pension Early’ Category

  1. Qualifying Activities for Claiming Plant and Machinery Allowances

    August 23, 2011 by admin

    In a separate article, we noted that persons engaged in qualifying activities can claim Plant and Machinery Allowance (PMA) on expenditure they incur for providing plant or machinery for carrying on the qualifying activity. In this article, we look at what are included under qualifying activities.

    CA20010 lists qualifying activities for claiming PMA:

    • Trade;
    • An ordinary property business;
    • Furnished holiday letting business;
    • Overseas property business;
    • Profession or vocation;
    • Mine, quarry or canal or other concern giving rise to profits from land charged to tax as a trade under ITTOIA/S12 (4) or under case I Schedule D in accordance with ICTA88/S55;
    • Management of an investment company;
    • Special leasing business;
    • Employment or office.

    To qualify for PMA under the last item above, employment or office, the asset must be “necessarily” provided for use in the office or employment. Expenditure incurred by employees on motor cars or other vehicles does not qualify for PMA from 2002/03 onwards. The rule now is that employees can claim statutory authorized mileage relief for qualifying business travel and not PMA on the vehicle.

    Expenditure incurred for the provision of plant and machinery in a building used as a dwelling house does not qualify for PMA. A block of flats, however, is not a dwelling house as such; but the individual flats are. Expenditure that can be apportioned as intended for the common areas of the block are eligible for PMA claims.

    Though dwelling houses are not eligible for PMA, property used for commercial letting of furnished holiday accommodation in the UK & EEA is eligible. To qualify, however, the property must:

    • Have been available for commercial letting for at least 140 days during the year,
    • Have been actually let to members of the public for at least 70 days and
    • Not have been let to the same occupant continuously for more than 31 days except under abnormal conditions.

    These letting conditions are due to increase from April 2012.

    We will look at the details of other qualifying activities in a separate article.

    For more information please visit Take Pension Release or drop by the blog owners site Taking Pension Early to get intouch

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  2. Manufacturers applaud capital allowances change

    August 23, 2011 by admin

    Manufacturers are applauding a key change to the tax regime for capital allowance claims that gives a substantial cash boost to companies that invest in the most up to date machinery.

    As part of the chancellor’s plans, in the near future companies will be able to claim tax allowances under the ‘short life assets election scheme’ within eight years, as opposed to the current four years.

    It is thought that this move is intended to increase competitiveness in the sector, and to increase the frequency of ‘made in Britain’ labels.

    The extended time frame will give businesses buying expensive machinery a return of several tens of thousands of pounds if they have disposed of a new machine costing a few hundred thousand pounds within eight years.

    Andrew Churchill, managing director of JJ Churchill, a manufacturer of Aerospace components, described the move as a “highly positive step”.

    He told the FT adviser: “At a time when many companies in manufacturing are coming under a lot of pressure move offshore (to low cost countries) having more of an incentive to invest provides one more reason for such businesses to stay in the UK.”

    It is likely that manufacturers will also be pleased by a number of other announcements from George Osborne. Namely, that there will be an extension in research and development tax credits for small businesses and that 21 ‘enterprise zones’ will be established around the UK to assist manufacturing businesses.

    For more information please visit Take Pension Release or drop by the blog owners site Taking Pension Early to get in touch

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  3. Is this a Loophole?

    August 22, 2011 by admin

    In a separate post, we looked at capital allowances that are allowed as a deductible expense for computing taxable income. We noted that capital allowances allow long-term expenditures, such as on buildings, plant & machinery and furniture, to be written off as expenses over their expected useful lives. We noted in particular that computing capital allowances on buildings is a complex exercise that accountants are not typically equipped to handle well.

    The complexity of capital allowance claims on buildings might make people think that these involve taking advantage of some loophole in law which might be resisted by tax authorities.

    Let us look first at what the term loophole means.

    In the context of law, it typically involves wording that can be interpreted in an ambiguous manner allowing people to interpret it in their favour and avoid complying with the intended legal obligation. It can also involve an omission while drafting the law that enables people to circumvent it by taking advantage of the omission in some way.

    Capital allowance claims are not based on any such loop hole. It is based on specific provisions of the law intended to encourage investment in capital assets. Based on established law dating back to 1878, it confers a right on taxpayers which they can claim in a straightforward manner and without recourse to any devious practices.

    In fact, thousands of capital allowance claims on buildings have been made and paid out. The goal should be to prepare a detailed report that will clearly list the items and the reasons why these items are eligible for capital allowance. In addition to being accurate, the report should also ideally be in a format approved by HM Revenue & Customs.

    This is a task for surveyors and valuers, and also requires familiarity with the complex provisions of capital allowance regulations as they apply to buildings.

    For more information please visit Take Pension Release or drop by the blog owners site Taking Pension Early to get intouch

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  4. Capital Allowances are not fully Claimed in most Cases

    August 22, 2011 by admin

    Capital allowances represent the “expensing” of qualifying assets over their useful lifetimes. Because these assets are used over a number of years, treating their whole cost as an expense in the year of purchase will distort operating results. And tax authorities will not allow you to deduct the whole cost from your revenues while computing the accounting profit / loss..

    The usual accounting practice is to estimate the useful life of the asset in years and spread the cost of the asset over these years. In most countries, this yearly “expensing” is known as depreciation while in UK, it is called capital allowance. Tax authorities have classified assets into different categories and laid down rules for claiming capital allowance under each category.

    In most cases, computing the capital allowance allowable for computing tax adjusted profit / loss is not a very complex task and your accountant would have claimed these in full. One major exception is capital allowances for buildings.

    In the case of buildings, tax authorities consider useful life of the basic structure, up to the plastering stage, as too long to be eligible for capital allowances. Walls, floors, ceilings and even the cables and pipes inserted into the structure for electricity / water supply are included in this so-called “first fix” costs.

    On the other hand, the costs of electrical fixtures connected to the cables, water supply fittings connected to the pipes, and various other fixtures such as doors in doorframes, security cameras and alarm systems, cookers and sanitary fittings fall under “second fix” and are eligible for capital allowances.

    The regulations are quite complex and few accountants are likely to be fully aware of all the items that can be included under second fix costs. They are even less likely to be able to assess the values of the eligible items (and there is a penalty for making excessive claims). This is particularly likely if you bought the building as a functioning structure at a single price with all (or most of) the fittings already attached.

    The result is that in an overwhelming number of cases, capital allowances on buildings are not claimed to the full extent of your eligibility. By claiming these now, you can save a substantial amount of tax. And because there is no time limit for making the claims, you can claim them even years after.

    Claiming Capital allowances is thus not exploiting some loophole or avoiding tax in some way. Instead, capital allowances claim is a fully legitimate claim that has been made and allowed in numerous cases by HM Revenue & Customs. It is your right to claim capital allowances on the allowable second fix structures of the buildings you use in your business.

    Thousands of pounds can be saved in taxes by most businesses through capital allowance claims because their accountants are not likely to have claimed these.  Accountants are accountants and not valuation experts who can segregate the value of a building into first fix and second fix components. Doing a proper valuation without inviting penalties for excessive claims or making too low a claim compared to your eligibility is a task for valuation experts.

    At Portal Tax Claims, we have the valuation and taxation expertise to save you potentially thousands of pounds in taxes.

     

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