The economic challenges of the past 24 months have impacted on all businesses and as a result businesses are looking for more opportunities to reduce costs. Tax is a major cost faced by all businesses, whether it is increases in fuel duties, employer national insurance contributions or stamp duty thresholds for property acquisitions. Taxation is of course necessary as the government cannot even begin to balance the books without considerable income from taxation.
For many businesses capital expenditure programmes have been put on hold for the past 24 months, however, this cannot last indefinitely if businesses want to compete in the marketplace. Capital assets also wear out and become obsolete over time thereby making continual investment in new capital assets necessary for survival. There are of course many ways to recoup part of the capital cost for investing in new capital assets. This article looks at some of the potential tax reliefs which are available to businesses in the logistics & warehousing sector, many of which are overlooked or significantly underclaimed.
Capital allowances are the mechanism by which the government allows businesses to claim tax relief for capital assets, i.e. those assets which are acquired for the long term use in the business, and set this off against taxable profits. The obvious expenditure which attracts capital allowances, for example, trucks, computers, warehouse racking etc, is generally identified by the accountant/tax adviser and capital allowances are claimed accordingly in the tax return. However, there are many capital assets which are inherent within buildings which attract capital allowances and these are often overlooked by the accountants/tax advisers. There are various reasons why such assets are overlooked, the main reason is perhaps the complexity of the rules surrounding capital allowances which seem to change with each new tax year.
Capital assets inherent within buildings which may attract capital allowances include: electrical systems, air conditioning/ventilation equipment, warehouse racking, fire alarm systems, security systems, sprinkler & fire suppression systems etc. There are different rates at which the tax relief is given depending on the asset in question (and in the case of some assets depending on when the expenditure was incurred) and this is perhaps where the confusion starts. On top of this is a further set of rules providing accelerated tax reliefs for capital expenditure incurred on environmentally beneficial and energy saving assets. In some cases, repayments of tax in the form of tax credits can be claimed for expenditure incurred on environmentally beneficial and energy saving assets.
In addition to the above, there is also tax relief available for expenditure incurred on the remediation of contaminated land (equal to 150% of the expenditure incurred) and capitalised repairs.
For the logistics and warehousing industry, a considerable proportion of the expenditure incurred in acquiring, developing, fitting out or refurbishing warehouse or distribution facilities, particularly those with temperature controlled environments, will attract tax relief in one form or another. However, many qualifying items of expenditure are commonly overlooked due to a lack of supporting information or insufficient knowledge of the rules relating to tax reliefs for capital assets.
By way of example, a situation which many tenants may be familiar with is as follows:
• A warehouse developer agrees to develop a warehouse facility to an agreed specification and the tenant agrees to enter into a lease and pay rent in respect of that facility.
• The tenant then separately agrees with the developer for certain tenant enhancement works to be under taken to enable the facility to be adapted to meet the tenant’s trade requirements and in return the tenant agrees to pay an additional capital sum to the developer for those enhancement works.
• The work is completed and the developer hands over the facility to the tenant.
• Sometime later, the tenant prepares its tax return for submission to HM Revenue & Customs, however, due to staff changes there is no one around who remembers what the capital sum paid to the developer, for the tenant enhancement works, actually relates to and the tenant ultimately misses its opportunity to claim tax relief in respect of a considerable proportion of the capital expenditure incurred on those tenant enhancement works.
The above example is not uncommon, however, in the current economic climate it is worthwhile spending a bit more time tracking down the correct supporting documentation to ensure that claims for tax relief in respect of capital assets are fully maximised. Even where expenditure was incurred in a prior year there is likely to be opportunities to claim tax relief and in some cases receive a repayment of tax from HM Revenue & Customs.
Tax reliefs for environmentally beneficial and energy saving assets
As previously noted, there are enhanced tax reliefs for expenditure incurred on qualifying environmentally beneficial and energy saving assets. The tax relief that can be claimed is equal to 100% of the cost of the asset in year 1. Taxpayers often overlook claims for tax relief in respect of such assets, similarly many product manufacturers also do not make purchasers aware of the accelerated claims for tax relief that can be claimed for qualifying assets. For example, in certain cases lighting can qualify for tax relief in full under the provisions for energy saving assets although to date many taxpayers have not yet claimed the enhanced tax relief to which they are entitled.
In certain circumstances, it is possible to claim a tax credit (tax repayment) for expenditure incurred in respect of environmentally beneficial and energy saving assets equal to 19% of the cost of the asset. When factored into the initial cost of purchasing the asset the result is a considerable reduction to the capital outlay. When the efficiency gains, reductions in the carbon footprint and tax benefits are all taken into account taxpayers can gain considerable benefits by investing in qualifying energy efficient assets even where the original capital cost is higher when compared with non-compliant products.
What do I do next to ensure I have made the most of the reliefs available?
If you are an owner/occupier of a warehouse or distribution facility then you may be missing out on significant tax reliefs on your capital assets. If your business has incurred capital expenditure in acquiring, developing, fitting out or refurbishing property in the past 10 years then it is likely that tax reliefs can still be claimed even if the expenditure relates to tax return periods that are now closed. Tenterden Consulting specialises in helping taxpayers maximise claims for tax relief in respect of capital expenditure. If your business is currently incurring or is planning to incur capital expenditure on property related assets then Tenterden Consulting can assist you with maximising your claims for tax relief.