finance
NOTES REGARDING CAPITAL ALLOWANCES
Tax relief on commercial property expenditure is given in the form of Capital Allowances. Whether the expenditure relates to the capital costs of a new refurbishment, fit-out or property acquisition Capital Allowances will be available on the plant & machinery element.
The downside is that the definition of 'plant' in the context of a fit-out is extremely complicated. Items that qualify as 'plant' are actually defined by exclusion - that is to say it excludes expenditure on the provision of buildings, structures and land. Included in the expression 'buildings' are walls, floors, and mains services. Needless to say there are therefore a number of elements of a fit-out that do not qualify for Capital Allowances (including most partitions, doors, frames and skirting and lighting) as they are deemed to part of the 'building'.
Deloitte and Touche have carried out a review of completed projects financed as a package and calculated that on average 65% of a typical project (excluding furniture) would qualify for capital allowances.
Generally the overall percentage will increase on projects with a significant element of mechanical and electrical work - i.e. air conditioning systems. As a rule of thumb though we work on 65% qualifying expenditure.
The allowances themselves are given on a reducing balance basis at 25% per annum. Some smaller businesses do, however, qualify for 40% first year allowances. There are also certain instances where enhanced allowances can be claimed - for example on "green" lighting and air-conditioning systems.
Further information is available by referring to the Inland Revenue website
http://www.inlandrevenue.gov.uk/manuals/camanual/CA22010.
Lease finance can get around the relative inefficiency of Capital Allowances. As lease repayments are fully tax deductible they avoid the whole Capital Allowance process. The lease providers will claim the allowances and you will simply deduct the lease repayments from taxable profits.
Our leases are typically written for a period of 5 years and can be used to finance the entire cost of a fit-out and/or furniture requirement. The leases are very similar to the lease rental agreements you would use for photocopiers etc. The process involved in arranging a lease is quite straightforward. However, the leases are unsecured and therefore covenant strength of the lessee is a fundamental issue. The funders are interested in the usual financial information - statutory and management accounts to help them reach their underwriting decision. The underwriting process usually takes up to a week depending on the financial status of the applicant and the size of the project.
