Introduced by our Capital Allowances Technical Team Manager, Dean Needham, Tax Talk offers a deep-dive view on different topics throughout the year.
In this edition, we explore the importance of submitting Capital Allowances expenditure to HMRC before the 31st January deadline.
It’s the most wonderful time of the year – January!
A significant portion of our Capital Allowances client base are individuals or partnerships who own commercial properties, as such, January is a very important month in our calendar year. Below we will explain why.
Individuals all have tax returns ending 5th April, and these tax returns must be submitted to HMRC by the following 31st January. The deadline to amend the document is the first anniversary of the 31st January submission deadline.
As an example, the 5th April 2019 tax return must be submitted to HMRC by 31st January 2020 and can only be amended up until 31st January 2021, meaning the tax position of this tax year cannot be changed after this date.
For individuals who have not yet identified and maximised all Capital Allowances on purchases, constructions, or refurbishments of a commercial property in the tax year ending 5th April 2019, there could be a significant immediate tax saving lost if the 31st January 2021 amendment deadline is missed.
Expenditure in the year ending 5th April 2019 currently qualifies for Annual Investment Allowance (AIA). This means 100% tax relief is available on qualifying expenditure up to the annual limit (for 5th April 2019 the limit is £400,000). If Capital Allowances from the 5th April 2019 tax year are left unclaimed after 31st January 2021 deadline, then the opportunity to utilise the 100% tax relief of AIA will be lost, and the benefit of unclaimed Capital Allowances will take much longer to realise.
Even when AIA is not available, i.e. for unclaimed Capital Allowances on a property purchase, construction, or refurbishment before the 5th April 2019 tax year, there would still be a tax-saving lost by missing the 31st January 2021 amendment deadline. The unclaimed allowances could be used to generate a tax rebate of tax already paid by using the lower percentages of writing down allowances (WDAs) – 18% for general pool items and 6% for integral features pool items. If the deadline is missed the opportunity to gain a rebate of tax already paid will be lost, and allowances would need to be used in the next tax year instead. This would result in a much slower realisation of benefit.
In short, the message here is: if you are a client or have a client who owns a commercial property personally as an individual or in a partnership, do not delay in getting Catax involved to identify and maximise the Capital Allowances available. There is an opportunity to immediately realise the benefit of any unclaimed Capital Allowances which would be lost if the 31st January 2021 deadline is missed, so get in touch as soon as possible!