Dig into the detail, maximise capital allowances

Even if today’s contract sum analysis provides limited cost details for construction projects, don’t be deterred. Experts who combine chartered surveying skills with tax knowledge can still prepare comprehensively detailed capital allowances claims that satisfy HMRC’s expectations.

In the old days, bills of quantities would provide copious detail on the costs of all kinds of fixtures – from the foundations to the frame, from mechanical and electrical items to joinery. “But the evolution of procurement processes, IT and fee pressures have changed all that,” says Sunil Sharma, Moore Stephens' capital allowances expert. “Now a typical contract sum analysis provides far less detail. This makes it harder for a general accountant to identify all the items eligible for capital allowances, cost them properly and make sure they gain the maximum capital allowances to which they are entitled.”

Digging into the analysis requires a combination of chartered surveying and tax expertise in order to “reverse engineer” the information. “By surveying the building and using industry standard pricing books, we can generate a much more detailed cost analysis,” Sunil explains. “We also know what to look for – that an internal door package could include spy holes or mechanical door closers for example, which may qualify for capital allowance in certain instances   and little by little the amount builds up. This enables us to put together an accurate and sufficiently detailed claim to satisfy HMRC.”

Sunil’s team has helped a number of clients in this way. “For one industrial unit, we managed to increase the capital allowance claim by 60%,” he says. “The accountant had managed to include basic items such as mechanical and electrical elements, but overlooked other items. Individually their costs might be small, but when added together they were substantial – and so were the eligible capital allowances.”

Applying knowledge of the tax system also enables optimised capital allowance claims. As Sunil explains, some assets will only be eligible for an 8% writing down allowance, whereas some qualify for enhanced capital allowances – a write-down of 100% in the first year. “One client was spending a huge amount on light fittings and claiming the basic 8% writing down allowance,” Sunil says. “By changing to a slightly different model, he was able to claim 100%. That made a huge difference to that year’s taxable profits.”

For help and advice on your construction tax challenges, please get in touch.


VAT team