The Finance Act 2012 altered the ability of businesses to take advantage of previously unclaimed Capital Allowances. Have you lost out?
The central change made by The Finance Act 2012 was the introduction of mandatory pooling of Capital Allowances at point of sale, which was phased in between 2012 - 2014.
So what is a Capital Allowance?
In simple terms it is a form of Tax Relief that applies to
- Commercial Property; and
- the fixtures, plant, equipment etc in them
Capital Allowances can be claimed on the expenditure on plant and machinery existing within a Commercial Property or, when a Property is refurbished. The result can be considerable Tax mitigation and often result in a refund of overpaid Tax from prior years.
So when your Company comes to calculate its Taxable Profit it cannot deduct anything representing the depreciation of an asset but can claim a "Capital Allowance." The list of items that are eligible is enormous ranging from taps on a sink to heavy plant & machinery. Expenditure you have incurred on these items is "pooled" and the Allowance is claimed on the balance of the Tax written off.
What should have happened?
The value of plant and machinery allowances can be a very significant element of the sale price of the Property and this value can, potentially, transfer along with the Property to the buyer.
However, the way in which they transfer changed in April 2014 as a result of The Finance Act 2012. These changes have very far-reaching implications for Solicitors and their clients alike.
From April 2014, the availability of plant and machinery Allowances for the buyer of a Commercial Property is completely dependent on the actions of the seller of that Property.
After that date, if a seller who was entitled to Capital Allowances has not claimed or pooled those allowances, the buyer gets absolutely nothing.
The new Rules required the seller to pool any fixtures prior to the sale of the Property. This meant that a Capital Allowances Report was required at the point of sale to ensure
- that there was a proper Audit Trail and
- that an equitable agreement on the allocation of the claim was reached between the seller and purchaser
The seller and the buyer then had a time limit of two years from the date of the sales transaction to agree the value and apportionment of the Allowances available for the Property.
What should your Solicitor have done?
Solicitors acting for buyers, make Enquiries of sellers in the pre-contract due diligence phase of a Property transaction to establish the Capital Allowances position of the seller.
Historically, Lawyers have often had little understanding of the ramifications of questions on CPSE documents or, S198/199 elections that were incorrectly or, inaccurately answered. The new Rules mean this cannot & should not happen.
It has always been unclear as to who is responsible for interpreting the replies to these Enquiries and advising the Client how they should react.
However, from April 2014, the interpretation of the answers given and advising on a course of action arising out of those interpretations is crucial to preserve entitlement to Tax relief.
Unless the Solicitor acting for the buyer specifically limits the scope of his retainer to exclude advising on Capital Allowances, they will
- have a duty of care to their Clients and
- risk a professional Negligence Claim if they get it wrong
This potential time bomb was recognised by The Law Society who issued a Practice Note entitled "Capital Allowances - New Pooling Requirement."
So what should you do?
The problem affects Commercial Properties sold after April 1st 2014 where the previous owner did not claim available Capital Allowances. If you were the purchaser, you will lose your opportunity to claim them unless you take appropriate action. You need expert advice as to whether you meet the criteria to be able to make a Claim.
CATAX Soliutions Ltd, with whom we work closely, believe that Commercial Property owners are sitting on in excess of £1bn in unclaimed Allowances!
What advice did you get?
Was proper due diligence carried out?
You may have been advised by all or any of the following:
They may well have been negligent if
- their retainer covered advising you on the availability of Capital Allowances; and
- they failed to give you proper advice
So what next?
Well our Professional Negligence Team, headed by Tony Marriott can advise you on whether you have a claim against one or more of your Advisers and can bring in expert evidence to support your Claim if appropriate. You could have lost many thousands of pounds.
Call us now on 0800 195 7517 or e mail us at email@example.com