4 Jan 2016
Mark Tighe
Job Title
Image: Freeimages/Steve Gray.
The idea of turning a veterinary practice upside down and shaking it vigorously may seem a little odd.
But that image – of a veterinary practice held aloft with dogs, cats, nurses and vets toppling out – is useful in helping explain what capital allowances are.
Essentially, everything that wouldn’t fall out of veterinary practice if you turned it upside down and shook it – what’s referred to as the building’s “intrinsic fabrication” – is what you can claim capital allowances tax relief against.
There is a lengthy list of qualifying items, including lighting and heating systems, pipework, water sprinklers and electricity cabling, as well as “embedded” features such as security installations and ventilation.
All of these can produce a huge tax windfall of thousands or even tens of thousands of pounds for vets who own their premises.
The good news is vets tend to fare very well after carrying out a capital allowances audit compared to other commercial property owners, the reason being their practices usually consist of a sizeable amount of intrinsic fabrication.
For example, the extra electronics and lights required to operate equipment and the need for sinks and plumbing in each consult room are particularly advantageous from a capital allowances perspective.
In our experience, 9 out of 10 veterinary practice owners will be due a tax windfall, and the amounts can be sizeable.
For example, in one veterinary practice we surveyed recently, we discovered £91,479 of unclaimed capital allowances in the intrinsic fabrication, equating to just more than 20% of the purchase price. Foul water disposal systems proved especially lucrative in that particular practice.
The net tax benefit to the vet at the higher tax rate was £36,592 (40% of £91,479). This relief was given in the form of an initial lump sum payment and then ongoing tax relief.
Following changes announced in the Finance Act 2012, it has become even more important for practice owners to have capital allowances on their radars as, since 2014, any unclaimed capital allowances must be identified and documented before, or at the point at which, a commercial property is bought or sold – or they could be lost forever.
So what’s our process of identifying unused capital allowances for clients?
We start by establishing the capital allowances history of the property and look at the details of any prior claims made by the accountant. If we feel unclaimed capital allowances exist then we will carry out an in-depth forensic survey, or audit, of the entire site.
We then produce a report detailing the reasons for making a capital allowances claim on items within the property along with a breakdown of the proposed claim amount. After that, we send the report to the client and his or her accountant along with guidance on how to submit the claim to HMRC to receive tax benefit.
Finally, it’s worth pointing out most capital allowances firms will only charge a fee if the capital allowances identified are substantial – at Catax Solutions, for example, we only charge a fee if the unclaimed capital allowances identified amount to more than £50,000.
Ultimately, capital allowances are a right and not a privilege, and if veterinary practice owners have incurred the expenditure or costs involved in buying, building or adjusting their building, then they are entitled to the tax benefit. And with average unclaimed capital allowances amounts so high, who can afford not to look into it?
