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Capital allowances on warehouses

With tax relief available on the purchase of fixtures and fittings and the bonus of a super-deduction on purchasing assets to fit out a warehouse, transport and logistics companies should give consideration in advance of a commercial property purchase or fit out to ensure they maximise the relief available.

Fixtures and fittings on purchase of a commercial property

Ideally the value of the integral fixtures should be agreed by way of a ‘s198 election’ and this is an agreed value between the buyer and the seller. The purchaser can then claim 6% writing down allowances on the value agreed, for example:

Year 1

Value of Integral features agreed£100,000
Writing down allowances at 6%£6,000
Amount carried forward£94,000

Year 2

Brought forward amount£94,000
Writing down allowances at 6%£5,640
Amount carried forward£88,360

The balance will continue to be written down annually and in the above example this would mean a total of £19k tax saving (at current tax rates)/£25k tax saving (at future tax rates).

If your company is considering purchasing a property, potential negotiation points to consider include:

  • If no capital allowances value is agreed between the buyer and seller, no claim can be made for future capital allowances
  • If the seller could have claimed allowances but did not for any reason, they must pool the expenditure before the sale of the building
  • If the seller doesn’t comply with the value election, they risk HMRC raising a balancing/tax charge

ACTION – Remember to speak to your tax advisor early in the process when considering purchasing a new property

Super-deduction – plant and machinery

Relief is also available via the super-deduction on eligible assets when fitting out a warehouse, and includes items such as:

  • racking
  • mezzanine floors used for storage
  • partitions which are moveable and are intended to be moved as part of the company’s trade
  • specialist/protective storage equipment
  • drainage installations
  • communications installations
pound coin graphic

On assets such as the above, a deduction of at 130% of the cost of the asset is available against taxable profits. For every £100 spent, companies will receive tax relief of £130. The relief is separate to the Annual Investment Allowance (AIA), which can then be used to obtain tax relief on other assets which may not be eligible for superdeduction. There is no upper limit on the amount of super-deduction which can be claimed, and assets bought either via hire purchase or directly outright are eligible.

As an example, if an asset cost £100,000, this would generate a tax deduction of £130,000, saving tax in the hands of the company of £24,700. This is £5,700 more than using annual investment allowance alone.

The super-deduction will continue to be available to companies on purchases of eligible assets up until 31 March 2023. (For accounting periods straddling 1 April 2023, special transitional provisions will apply). 

If any plant and machinery items are sold in a period ending before 1 April 2023, the company will be taxed on the proceeds, however for accounting periods straddling 1 April 2023, the charge is reduced.

ACTION – Companies should consider the timing of any capital spend/disposals sooner rather than later in the process in order to take advantage of the super-deduction whilst it remains available.

Summary

Overall, There are some generous tax treatments that surround the acquisitions of property or equipment. The key point to remember is to speak to your advisor early in the process so you can fully understand all the implications and benefits around the transactions.

If you would like to find out more about capital allowances on warehouses, contact Donna Kenyon.

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Posted in Blog, Transport & logistics