Unclaimed Capital Allowances
What was the problem?
A client was referred to Sherlock & Co via an existing client, they felt that they had “out-grown” their accountant and needed better tax advice than they were getting as they were planning a move which would see their business grow significantly. The business was a Veterinary practice in Manchester.
The vets operated out of an old townhouse, which had been extended over the years but could not be extended any further. As a result, they agreed (in principle) to sell their old building and take out a 10-year lease on a much bigger building which would allow them to grow their business significantly and it would also allow them to offer procedures that they had not been able to previously because of space restrictions.
The problem was the Vets did not know if their plans were tax efficient.
What was the solution?
Sherlock & Co reviewed the last set of financial statements and previous partnership tax returns to establish the historic position.
Specifically in relation to property tax, Sherlock & Co made 3 proposals:
- Conduct a property survey of both the new and the old buildings.
- Review the sale agreement for the old building; and
- Liaise with the contractors who were fitting out the new premises.
Our property tax expert working with our tax and accounts department, established that Capital Allowances had not been claimed on the old building, and that the draft sale agreement did not include the specific £1 election clause which would allow the Vets to make a retrospective claim after the building was sold.
What was the result?
Sherlock & Co proposed a change to the sale agreement which after speaking with the Solicitors was accepted and was included. Subsequently, Capital Allowances were claimed on the old building. These allowances were worth £34,000 in total which resulted in a real tax saving of £15,980. Had the change not been made, these tax savings would have been lost forever.
In addition, two further things came out of the work that Sherlock & Co did:
- We discovered that the proposed lease for the new premises contained a clause which meant that the landlord did not have to offer the vets a new lease, i.e., the vets could be ‘kicked-out’ after 10 years. We advised our clients that this would significantly reduce the value of the business and meant they were not in real control. Our suggestions were listened to and the lease was amended. The Vets are currently looking forward to a second successful term in the rental property.
- The new property was refurbished from top to bottom and the total spend was £280,000. Sherlock & Co completed the Capital Allowances claim which saw a claim being made for £230,000. Over several tax years, this claim was worth £108,100 in real tax savings.
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