Last month, the news of the Tories earning a parliamentary majority for the first time since 1992 truly flew in the face of pollster predictions, but their shock victory has been met with widespread approval from the business community.

The Prime Minister boldly labelled SMEs the ‘growth engines’ of the UK economy, receiving unanimous support among small business owners, but it’s now crunch time for David Cameron. He needs to go beyond rhetoric and clarify how he plans to support small business — and simplifying the tax benefits available to them, such as capital allowances tax relief, is one place to start.

Small firms need tax boosts that are easy to claim if they are going to play an integral role in driving the country’s economic recovery. I am sure that most business owners will agree that the current capital allowances system is over-complicated, and as a result, UK businesses do not have the support they need to invest and grow.

And for those who don’t know too much about capital allowances, they’re a form of tax relief that can be claimed by commercial property owners who incur capital expenditure when building, buying or refitting a property or properties. Provided you’re a UK taxpayer, and you own a commercial property, you may be entitled to this form of tax relief.

We have been crunching the numbers and an alarming number of commercial property owners — often small businesses — are failing to claim capital allowances. So much so that those who could have reaped the benefits of them have lost a staggering £2.1 billion since April 2014– it certainly tugs on the purse strings doesn’t it?

So what can he the Conservatives do to help these businesses? Well, a good starting point would be to simplify the way capital allowances are claimed!

Having discussed the issue with my peers, another recommendation would be to ensure one person is made responsible for ensuring this valuable tax relief is claimed. Should it be the property agent? The lawyer? Or, the accountant? At the moment, the responsibility is not the sole preserve of anyone in particular — and this causes problems. If I had a pound for every time I have heard “my accountant will sort it out”, I would be sitting on my own island, sipping a cocktail in the sun.

Also, while most accountants are aware of capital allowances, their knowledge — understandably — is superficial, as they aren’t fully trained to understand all the intricacies. As a result, they do not have the expertise to pick out certain pockets of expenditure on property that qualify for relief.

And since their clients aren’t experts either, they aren’t in a position to check whether the allowances they are entitled to have been claimed fully. This is why working with a specialist is crucial and instructing one at the earliest opportunity is vital.

Whoever is given that responsibility should also ensure that the client — companies like yours — doesn’t begin any refurbishment work before an assessment has been undertaken. One thing to note here is that capital allowances can be claimed against original items and then against new items when they’re replaced. If you plan to refurbish a property, it’s vital that a capital allowances assessment has taken place before work begins to ensure that maximum benefit can be gained both before and after completion.

Restructuring capital allowances so they are relieved at different rates for SMEs and larger companies would be most beneficial to the business community. Similar to the structure for Research & Development relief (R&D), this is a simpler and fairer way of distributing the tax.

The Conservative Party’s election pledges to cut the red tape, treble the number of start-up loans and increase the number of start-ups to 600,000 by 2020 were promises guaranteed to get the business community on side. To allow them to truly grow and prosper, however, the new government needs to pay heed to the tax reliefs that are already due to UK businesses under UK law — but which, all too often, aren’t being exploited.

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What now for capital allowances?

But considering that one third of private sector turnover in the UK comes from small businesses, according to ONS, and that in 2014 over 99 per cent of UK private sector businesses can be classed as SMEs (Parliament statistics), it makes sense to place this debate in the context of small and mid-sized companies.

Seeing as innovative SMEs have been praised as “growth engines” of the UK economy in the political arena, what can the incoming government do to reward and support entrepreneurship, and, in turn, further economic growth?

Simplify capital allowances
If small firms are to drive the economic recovery, they need tax investment incentives that are simple to claim. The capital allowances system is over-complicated, and as a result, doesn’t provide the support that UK businesses need to encourage them to invest.

While there have been some improvements in establishing who is eligible to claim capital allowances (in which the majority of SMEs would qualify), it still remains unclear when capital allowances need to be claimed, and who should begin the process of claiming this tax relief. Should it be the property agent? The lawyer? Or the accountant? This needs to be clarified swiftly.

Restructure the rates of Capital Allowances
Similar to the AIA, it is high time the capital allowances rates were revamped. Capital allowances should be relieved at different rates for SMEs and larger companies, as per the structure for R&D relief. This is a fairer way of distributing the tax relief, and allowing SMEs to continue acting as a lifeline of the UK economy.

Publicise capital allowances
The HMRC’s somewhat MI5-like attitude towards this tax relief means many smaller businesses aren’t taking the next step in their evolution and purchasing their own premises. This is because they are under the false impression they aren’t able to afford the costs and capital expenditure necessary to operate fully. In reality, there are lucrative tax reliefs available which could make owning a commercial property possible.

Since the implementation of the Finance Act 2012 last April, which stipulated that capital allowances needed to be claimed prior to or at the time of purchase, it’s been estimated that commercial property owners have lost a potential £1.6 billion of tax relief – and this is mainly due to lack of awareness.

Enhance the Annual Investment Allowance (AIA)
Retaining the annual investment allowances at its current rate of £500,000 or even an increase to £1m, would benefit SMEs. The Chancellor in last month’s Budget accepted the AIA needed to be addressed, as the reduced rate of £25,000 was simply not feasible. A higher rate will encourage capital expenditure by businesses that have experienced stilted growth since 2008.

The main political players are good at playing lip service to SMEs, and, rightly so – they are boosting the economy. But the elected party needs to go further than rhetoric, and practice what they preach. Without a government that fully supports this sector, all the ambition and entrepreneurial spirit in the world won’t get small business owners very far.

By Mark Tighe, capital allowances specialists Catax Solutions

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The election: Just what can the parties do to win over SMEs?

We’ve been closely monitoring the effect of the implementation of the 2012 Finance Bill on capital allowances claims this year and, as predicted, we’re seeing the worst-case scenario unfolding.

Essentially the changes in regulation stipulated that any individual or business owning a commercial property has to identify the capital allowances in their commercial property at the point of being bought or sold, or they could be lost permanently.

To date, Britain’s commercial property owners, or more specifically their representatives, seem completely unaware of this and as a result are losing a vast amount of money in tax relief month after month. In the first financial quarter of 2014, we believe that as little as 1 per cent of eligible commercial properties have had tax relief claimed against them. Based on conservative figures, we estimate this to equate to losses somewhere in the region of £100m.

The Finance Bill is somewhat of a quagmire, containing several intricate complexities, hence it’s not surprising that many of the parties involved in commercial property transactions are struggling to get their heads around the changes. Consequently, the amount of tax relief being lost will grow with each passing quarter.

We are also concerned that what we are seeing is the tip of an iceberg that could quickly reach melting point, leading to accusations of negligence, followed by complex and protracted legal proceedings as the situation gets out of control and more and more property owners discover that they could be missing out on a serious amount of money.

There is no doubt in my mind that anybody involved in selling a commercial property should look to appoint a capital allowances specialist as quickly as possible.

In fact, the CPSE.1 (v3.3) document (Commercial Property Standard Enquiries), covering pre-contract enquiries for all commercial property transactions, has recently been updated, with section 32.10 specifically requesting that a capital allowances adviser be nominated. All commercial property buyers should ensure that this is completed accurately to avoid implications in the future.

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Confused business owners overlook a capital idea

We’ve learned over the last few weeks a lot about what capital allowances are, but with the deadline fast-approaching, it’s a good idea to examine exactly who can claim, and indeed what a claim looks like in real terms for different sectors.

We took two different sectors – private education and hospitality. Two sectors that, one might think, couldn’t seem more different! But in fact, when it comes to claiming capital allowances they are rather similar and have something in common: there is money to be made.

Let’s first examine the hospitality industry. Acting on behalf of an independent hotel of 74 bedrooms Catax Solutions uncovered almost £400,000 in capital allowances.

And to give an idea of the items identified and where rebates were owed, this was broken down to include £32,000 for disposal and drainage installations, £35,000 for water installations, £95,000 for heating installations, £130,000 for electrical fittings and over £68,000 for fixed internal fittings. So clearly there are significant savings to tax bills to be made – and it’s not just the preserve of the larger hotels. The company also uncovered a similar figure of £411,000 on behalf of a boutique converted country home. Better still, Catax Solutions will only charge a fee if they are able to identify a sizeable amount of unclaimed capital allowances.

This is equally fruitful for the independent education sector, too. Catax Solutions uncovered a near £150,000 in capital allowances when acting on behalf of an independent school. And to give an idea of the items identified and where rebates were owed, this was broken down to include £6,000 for disposal and drainage installations, £20,000 for water installations, £59,000 for heating installations, £31,000 on ventilation installations, £14,000 for electrical fittings and over £20,000 for fixed internal fittings.

Indeed, almost every sector where commercial properties exist can benefit from capital allowances, which as I’m sure you can guess, means pretty much every business sector in the UK.

So why not investigate whether this applies to you? (Hint – if you own commercial property it almost certainly does.)

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How much could you claim in capital allowances?

While the UK is on the brink of coming out the other side of the recession, there’s still a long way to go.

Whilst times are undoubtedly tough for SMEs, who may be sacrificing staff, technical equipment and even office space, it does not have to spell disaster. Why? Due to unclaimed capital allowances, small to medium-sized businesses could be due a significant tax rebate from the Inland Revenue. And after the UK narrowly escaped a triple dip recession, a windfall could be just the ticket for them in these straitened times.

What exactly are capital allowances?

In short, capital allowances are a form of tax relief available to anyone who incurs capital expenditure buying, building or refurbishing commercial property. Put simply, they are a means of reducing your tax bill.

Research tells us that more than 90% of UK commercial property owners will be owed tax relief in the region of thousands, or even tens of thousands, of pounds. And this is applicable to most commercial buildings.

Here at Catax Solutions, we have estimated the amount of capital allowances that are currently sitting unclaimed within commercial property to be in the region of £70 billion.

Why are capital allowances not on the radar of most small businesses?

Most people, let alone small business owners, are completely in the dark about what capital allowances are. That’s largely because they are an incredibly obscure area of tax.

In addition, it simply isn’t the area of expertise of the trusted accountants, lawyers and IFAs of small businesses to investigate the unclaimed capital allowances that can be found in these properties. In fact, it can be incredibly difficult to identify qualifying items within commercial premises such as office blocks, car showrooms and dental surgeries.

Rather, accountants enlist the help of capital allowances specialists to carry out in-depth forensic surveys if properties, using thousands of detailed matrices to uncover qualifying assets and their value. In a typical office, this might include heating systems, lighting and security systems, pipework and drainage, amongst other embedded features, which capital allowances specialists like to call the ‘intrinsic fabrication’.

Privately-owned businesses will be only too familiar with the cost of fitting these items given the need for extra electronics, lights, sprinkler systems and plumbing on each office floor.

Put into practice, acting on behalf of a privately-owned school, Catax Solutions recently uncovered almost £150,000 in capital allowances. And to give an idea of the items identified and where rebates were owed, this was broken down to include £6,000 for disposal and drainage installations, £20,000 for water installations, £59,000 for heating installations, £31,000 on ventilation installations, £14,000 for electrical fittings and over £20,000 for fixed internal fittings. So clearly there are significant savings to your tax bill to be made. Better still, Catax Solutions will only charge a fee if they are able to identify a sizeable amount of unclaimed capital allowances. All in all, it’s very worthwhile investigating to find out whether you have a claim!

Catax Solutions have worked with a number of different businesses in a variety of different sectors. A recent example of a successful sector case study was in the hospitality industry, with Catax Solutions successfully uncovering a staggering £400,000 in capital allowances in an independent hotel of 74 bedrooms.

Whether you’ve considered investigating them or not, capital allowances are your right and not a privilege; if you own your business premises and/or have made significant improvements to it, you deserve the tax benefit. And for owners of businesses such as hotels and private and independent schools who have dealt with the effects of the recession for the last few years, a tidy sum from the Inland Revenue would be a great advantage.

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What businesses need to know about capital allowances

The role of advisers in 2014 will continue to be to steer their clients in the right direction on the road to recovery, and take advantage of any financial advantages and incentives for their clients in the coming months. In the commercial property sector, this advantage comes in the form of capital allowances, which have gone largely unnoticed and unclaimed by the advisers of commercial property owners.

Due to unclaimed capital allowances, there is significant tax relief available to the owners of commercial property. And in the current climate, a windfall could be just what the owners of these properties need in order to bolster their businesses.

What are capital allowances?

In simple terms, capital allowances are tax relief available to anyone who incurs capital expenditure buying, building or refurbishing commercial property. In short, they are a means of reducing your tax bill.

Research tells us that more than 90 per cent of UK commercial property owners will be owed tax relief in the region of thousands, or even tens of thousands, of pounds. And this is applicable to most commercial buildings.

Our estimate is that the amount capital allowances that are currently sitting unclaimed within commercial property is in the region of £70 billion. And whilst Catax Solutions often work with larger companies in order to help them realise their tax relief, it’s equally important for smaller business owners to be aware of how to claim.

The bigger picture – what tax relief looks like

For commercial property owners, there’s a great awareness of the expenditure involved in fitting these items given the need for extra electronics, lights, sprinkler systems, air-con and plumbing in their premises.

For one property in purchased at £417,150, a total of £93,362 in capital allowances were identified – an overwhelming benefit to the owner. This can be broken down into the following items: disposal and foul water drainage installations (£7,343), heating installations (£23,249), ventilation installations (£6,820), electrical installations (£21,087), communication installations (£7,574) and fixed internal fittings (£22,426).

Why advisers must act now

Every commercial property owner in the UK must act now. This is because after a two-year transitional period, the 2012 Finance Bill will finally be implemented on 1 April 2014.

From this date, unless unclaimed capital allowances relief is identified and documented at the point at which commercial properties are bought or sold, it will be lost forever.

And the impact for advisers who fail to do this? A client who has not been informed of these very significant changes to legislation after April will understandably be well within their rights to seek compensation. And this may result in very messy litigation for advisers – be they accountants, IFAs or lawyers.

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What advisors need to know about capital allowances

First introduced by the post-war Labour government in 1946, they were designed as a means to boost a flagging economy after years of exhausting conflict. The Income Tax Act of 1945 put into place a system of capital allowances to encourage and assist the reconstruction of British industry, as well as encouraging growth.

Prior to capital allowances, there had been a tax deduction for expenditure in renewing or replacing machinery in a plant called ‘wear and tear’, introduced in 1978. It represented the diminished value of plant and machinery used for trade purposes during the year.

The new system of capital allowances was considered to be far more generous than its predecessor, ‘wear and tear’. For example, the annual rate of plant machinery allowances was set at 25%, which was considered to be well above the rate of depreciation that was considered to be just and reasonable.

Capital allowances explained: why business owners need to know about them now

Still unsure about what capital allowances actually are? You’re not alone. Put very simply, they are a form of tax relief available to anyone who incurs capital expenditure buying, building or refurbishing commercial property. In short, they are a means of reducing your tax bill.

A rough estimate suggests that around 90% of commercial property owners will be owed a significant tax rebate in the region of thousands, or even tens of thousands, of pounds.

At Catax Solutions, we have tried to put a figure on the amount of capital allowances that are currently sitting unclaimed within commercial property and have estimated it to be in the region of £70 billion. Staggering, isn’t it?

But there’s a catch.

The impending changes to the 2012 Finance Bill which come into full effect in April this year mean that there will be an obligation for the advisers of commercial property owners to pool all capital allowances to keep them ‘alive’ for claiming, or else they will be lost for not only the new owner but also all subsequent owners.

How to investigate capital allowances

The truth is, it can be incredibly difficult to identify qualifying items within commercial premises. Even the advisors of commercial property, who are not specialists in the field of capital allowances, may not be fully accustomed to knowing which items in a commercial property may qualify.

Capital allowances companies like mine carry out in-depth forensic surveys of properties and use thousands of detailed matrices to uncover qualifying assets and their value. This might include air conditioning or heating systems, lighting and security systems, pipework and drainage amongst other forms of embedded features.

To put this into practice, acting on behalf of an independent business in the hospitality industry, Catax Solutions recently uncovered almost £400,000 in capital allowances. And to give an idea of the items identified and where rebates were owed, this was broken down to include £32,000 for disposal and drainage installations, £35,000 for water installations, £95,000 for heating installations, £130,000 for electrical fittings and over £68,000 for fixed internal fittings. So clearly there are significant savings to your tax bill to be.

Capital allowances are your right and not a privilege; if you have purchased a commercial property and/or have made significant improvements to it, you deserve the tax benefit. There’s no time like the present to claim.

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Capital allowances: how did they come about?