Wednesday, February 22nd, 2012
Introduction
HMRC undertook Formal Consultation between 31st May and 31st August 2011, to gather information from stakeholders and establish how to proceed with proposals for changes to legislation on Capital Allowances for fixtures as laid out in the previous budget.
• The objective of the new policy is to ensure that ‘expenditure on a fixture can only be written off once against taxable profits over its economic life’.
• Businesses disposing of or acquiring property are most likely to be affected by the changes.
Current Position with regard to Capital Allowances for Fixtures
Capital Allowances are used to provide tax relief for the depreciation of certain capital assets, mainly plant and machinery, including most fixtures in a building used by a business. The allowances are calculated as a percentage of the Capital Expenditure incurred and are deducted from the income / profit of the business.
The current legislation contains rules to limit the allowances that can be given to the lower of the original cost (section 62 CAA) or the last disposal value (section 185 CAA). However, current law does not prescribe when expenditure on fixtures should be pooled, and as a result there is no time limit to constrain when a seller and purchaser should agree the part of the sale price of a property that should be attributed to fixtures.
This has created a problem for HMRC as it has led to late claims by owners at a time when a single sale value for fixtures can no longer be agreed and brought into account by both parties. As a result of this HMRC were concerned that, due to perceived defects in current rules, tax was being avoided. Due to lack of historical data there was potential for Capital Allowances to be claimed on more than the original cost of the fixtures, or for Capital Allowances to be claimed twice (once by previous owner and once by purchaser) contrary to policy intent.
Changes to Capital Allowances System
The legislation to be included in the 2012 Finance Bill will make the availability of Capital Allowances to a purchaser conditional on:
1) Previous Capital Expenditure on qualifying fixtures being pooled (new capital expenditure added to unrelieved expenditure) before a subsequent transfer to another person;
2) Seller and Purchaser using 1 of 2 existing procedures to fix agreement regarding the sale of fixtures;
a. Joint S198 election;
b. First Tier Tribunal facility to agree value if both parties can’t agree within 2 years;
3) In exceptional circumstances, the Past Owner providing written confirmation of the disposal value of the pool that he / she had sometime earlier been required to bring into account, within two years of a later sale of the property.
The legislation will also include a technical amendment to enable plant and machinery capital allowances to be claimed by a new owner on any fixtures expenditure to the extent that this has not already been relieved under the BPRA scheme (Part 3A, CAA).
The new rules will take effect from April 2012, though there will be a transitional period to assist in implementation of some elements of the new rules until April 2014.
Tags: capall solutions, capital allowances, fixtures, hmrc, property tax, tax
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