Enhancing cash flow through Capital Allowances
With COVID-19 having such a significant impact on all businesses, it has never been more important to focus on your cash flow. One area that should be considered is making sure that you can claim all the tax allowances and reliefs available to reduce the outflow of cash in tax payments or raising cash through tax repayments.
A detailed review of your capital allowances can help reduce current tax liabilities. Considering prior years expenditure, where capital allowances may not have been claimed or fully reviewed to maximise the allowances available, could boost your cash flow by generating tax repayments.
Often during very busy periods, companies and individuals have not had the time to fully focus on some areas of tax compliance, alternatively, other tax deductions may have been available that limited the need to carry out a thorough review. Therefore, businesses may wish to review the approach they have taken to capital allowances in the past and consider if there is scope to improve their existing position, reduce the income or corporation tax now due or to generate repayments.
Timing of a claim
Providing assets are still owned, following the review of prior years’ expenditure, an amendment of a tax computation and return can trigger the repayment of tax that has been paid in a previous profit making period to reclaim the associated income or corporation tax paid. There is no time limit on the opportunity for claiming capital allowances for assets that are still owned and it is possible to bring any additional qualifying expenditure available into a tax year which is still open or available for amendment.
Our capital allowances team have significant experience across all industries and sectors to provide specialist support to benchmark levels of qualifying expenditure and to maximise the allowances available. The team have undertaken many current and retrospective reviews and are experienced in agreeing positions with HMRC.
Which businesses could benefit?
Any businesses that have incurred capital expenditure on assets (particularly buildings or structures - including the acquisition, construction and refurbishment or fitting out of properties for occupation or investment) could benefit by carrying out a review.
Some specific areas to consider include:
- Have you purchased an existing property for which capital allowances have not been claimed or was a capital allowances election made on purchase for a limited or nominal amount?
- Are capital allowances claimed based on a historical or sample based approach that may not reflect your recent profile of expenditure or take into account the latest legislation?
- Are capital allowances being claimed in the years in which expenditure is incurred and have the enhanced allowances and reliefs being utilised? For example, the Annual Investment Allowances currently covers expenditure of £1m per annum.
- Have you made any corporate acquisitions where the historic capital allowances position of the target company has not been fully reviewed or considered?
- If you carry on qualifying R&D and have bought machinery or facilities to help you do that work, have you claimed the 100% research and development capital allowances due on all the relevant expenditure?
- Have you incurred expenditure on energy saving or environmentally beneficial plant and machinery? For expenditure incurred up to April 2020, a 100% first year allowance is available or where a company has losses this can be surrendered for a payable tax credit.
BDO’s capital allowances team can undertake an initial review to identify any opportunities to claim additional allowances to help improve your cash flow. For help and advice, please feel free to get in touch.
BDO London - Baker Street