Consulting Services – additional allowances of £1,800,000

Our client had agreed the principles of how capital allowances were to be split between the seller and our client the buyer on a portfolio of properties. Our client received details of the capital allowances on Thursday evening, the day before exchange was due to take place.

The seller had prepared contract clauses to give effect to what had been agreed. Our client consulted us at 09:30 on the Friday morning to ask us to review the contract clauses and instructed us immediately to protect its position.

We re-drafted the contract clauses to incorporate what had been agreed by the principals, and to ensure that tax compliance matters were adequately dealt with. The clauses would also allow us to prepare the documentation required after exchange as there was simply no time to do so before exchange. 73 facsimile messages were exchanged between 09:30 and 21:10 and exchange of contracts finally took place at 21:24.

The seller had misrepresented itself in pre-contract negotiations and consequently failed to carry out the compliance requirements provided for in our re-drafted clauses. The seller was thus prevented from retaining the amount of allowances that it intended to retain.

Our client obtained additional allowances of £1,800,000. Our fee for that day’s work was calculated on a time basis and for the hours we spent drafting and negotiating the contract our charges were less than 0.50% of the tax saving we secured.

Consulting Services – allowances protected of £6,000,000

Our client disposed of its flagship London retail store and in its enthusiasm of achieving an unexpectedly high sales price, inadvertently failed to protect against the claw-back of capital allowances by way of a Capital Allowances Act 2001 s198 election.

The buyer – if well advised, could force the claw-back of approximately £6,000,000 of allowances. We had a long-standing relationship with our client, had acted for a considerable time and were aware of all material aspects of the pre-disposal re-structuring that had taken place within its property portfolio.

Consequently we were able to advise our client to put in place a Capital Allowances Act 1990 s59B election between a selected intra-group transfer and thus prevent the buyer from obtaining the allowances and forcing a claw-back of allowances for our client.

This work saved our client £1,800,000. We spent two hours determining the recommended course of action and drafting the s59B election. Our fee was too low! We did however continue to do all of the property analysis for that client until the company was sold to another retailing group.

Consulting Services – additional allowances of £54,000

Our client had carried out extensive refurbishment works to a building that it had acquired in a derelict state. The property had cost £80,000 to acquire and the refurbishment works had cost £220,000. The clients’ accountant had claimed £44,000 of the refurbishment as revenue expenditure, £44,000 as plant & machinery and the balance ineligible. These two amounts of £44,000 had been calculated as 20% of the £220,000 refurbishment works cost.

HMRC enquired into the clients return and rejected the £44,000 revenue deduction and asked for support for the £44,000 of plant & machinery additions. Examination of the invoices identified approximately £30,000 of plant & machinery items.

We re-analysed the whole of the £220,000 expenditure and identified £98,000 of plant & machinery additions, which was agreed by HMRC without further enquiry. We also agreed that no revenue deduction was permitted.

The result of our work was that our client claimed £98,000 allowance (as Annual Investment Allowance). Prior to the enquiry, our client had claimed £88,000 – £44,000 as a revenue deduction plus £44,000 as capital allowances upon which it claimed and Annual Investment Allowance.

Our client was an individual and our work produced an overall tax saving for him, a 40% taxpayer of £21,600.

Consulting Services - first year tax saving of £20,000

Our client opened a new retail outlet and received £100,000 from the landlord. The intention was that the £100,000 was a contribution from the Landlord towards our clients’ fitting out costs. The fitting out works cost £200,000 of which £160,000 qualified for capital allowances.

The contribution clause in the agreement for lease was poorly drafted and the £100,000 payment was treated as a reverse premium and taxed over the 2 year period to the first rent review.

Our work involved drafting an addendum to the contribution clause in the agreement for lease to ensure that the contribution was not caught by the deemed premium rules and applied to REDUCE the amount of capital allowances claimed.

Maximising the capital allowances claimed does not always reduce the tax payable although it is always beneficial to maximise the amount claimable.