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Landlords of residential property are at a disadvantage when it comes to claiming capital allowances on plant and machinery. Plant in a ‘dwelling house’ does not qualify for capital allowances. It is, however, still possible to claim capital allowances on plant installed in common areas.

Common areas, for example, in a block of flats.

Commercial property landlords suffer from no such restrictions and can claim capital allowances on the cost of any plant and machinery they install.

The rates of capital allowances vary according to thetype of the plant. Most items of  plant qualifies for a ‘writing down allowance’ at a rate of 20% per year – which will reduce to 18% from April 2012, but certain items which are ‘integral’ to a building only qualify for a lower rate of 10% – reducing to 8% from April 2012.

‘Integral’ plant includes:

• Electrical systems
• Cold water systems
• Systems for heating, ventilation, hot water, and air conditioning
• Lifts, escalators, and mechanical walkways
• External solar shading

Annual Investment Allowance (AIA)

Any of the above types of plant, qualify for the Annual Investment Allowance (AIA), which gives tax relief for 100% of expenditure on plant and machinery up to a limit of £100,000 for the year. This limit is also being reduced in April 2012, to a mere £25,000, so if you were thinking of spending substantial amounts of money on plant in your building, now is the time.

A word of warning to limited companies – if your accounting period does not end on 31 March, the allowances are time apportioned. The details are complicated and you might want to take advice on this, particularly if it going to affect your decision on spending.

Most plant installed in a building is likely to be ’integral‘ as defined above, but with the AIA allowance, in many cases the expenditure will be covered by the AIA and will never be subject to the lower rate of writing down allowance.

Additional costs to claim!

The costs of transporting the plant to your building, and of installing it, are considered part of the cost of the plant, and can thus qualify for the AIA.

Also included is the cost of alterations to an existing building which are done for the purpose of installing plant and machinery. For example, if  installing a lift in a building, the cost of the lift shaft – including the bricks and mortar – can be treated as part of the cost of the lift itself, and thus will qualify for the AIA.

Note that this only applies when altering an existing building, not constructing a new one. If installing plant and machinery involves an extension to an existing building, you might be able to show that the alterations were ‘incidental’ to the installation of the plant and machinery. ‘Incidental’ has been defined asbeing required in order to install the plant. Liaise with your architect, builder, and quantity surveyor to ensure that all relevant expenditure is identified, the plans and the invoices should indicate those works that were ‘incidental’ to the installation. An appropriate proportion of these professionals’ fees can also be treated as part of the cost of the plant.

Act now, it may soon be too late!

If you purchased a building, together with plant, and have never claimed for the plant, you can still make a claim. However, the government started a consultation process in May 2011 on whether to continue to allow capital allowances claims on purchases of commercial property regardless of the purchase date. As the legislation stands at the moment a claim may be made for qualifying “plant and machinery” within the property with no time limitations applied as to the date of purchase.

It would seem that the government have realised, if the current regime continues, it will potentially be vulnerable to the loss of millions of pounds through tax rebates and reduced tax income. Given the  state of the public finances,  the UK the government wants to retain as much money in HMRC’s tax take as possible.

If the Government does manage to reduce how far one can go back in making a capital allowances claim then many owners will have lost out without ever realising it. Many landlords of homes in multiple occupation (HMO’s) have already lost out, to a great extent, due to changes that HMRC introduced in October 2010 as will many owners of furnished holiday lets (FHL’s) if they do not review how recent changes have affected their rights to make a capital allowances claim.

Related articles

• Time is running out for holiday home tax relief (independent.co.uk)

Approximately 146,000 people who started to receive their State Pension during 2010-11, and who had other income, may have underpaid tax for 2010-11.

The underpayments will have arisen due to a computer glitch at HMRC. As the error was discovered in the year the liability arose these underpayments will not be waived by HMRC.

Scammers are latching on to this error and pensioners may be targeted. HMRC would never email or call to ask for your personal banking details so any request that is received is likely to be fraudulent. Any such requests should be ignored.

HMRC will always make their demands in writing. If you do receive a legitimate claim HMRC have disclosed that they will allow payments to be staggered over three years starting from 2012.

Four reasons for filing your tax return on time

Late filing of your self assessment tax return for 2010-11 will be subject to a new penalty regime. The old £100 penalty has not proved to be the deterrent it was intended to be – too many tax payers are still filing late returns.

From October 2011, the last date for filing a paper return for 2010-11, four penalties now apply.

• From day one: you will be charged a £100 penalty even if you have no tax to pay or you have paid any tax due.
• From 3 months late: you will be charged an automatic daily penalty of £10 per day up to a £900 maximum.
• From 6 months late: you will be charged additional penalties which are the greater of 5% of tax due or £300.
• Over 12 months late: again additional penalties based on greater of 5% of tax due or £300. In serious cases this penalty may be increased up to 100% of tax due.

Don’t forget these penalties will be applied after 31 January 2012. HMRC will assume that you are going to file online if you miss the paper filing deadline of 31 October 2011. Under no circumstances should you post a paper return after 31 October 2011. This will trigger the new penalties.

Seek advice and file your return online before 31 January 2012.

Three reasons for paying your tax on time

Penalties for paying tax late are:

• 30 days late: initial penalty of 5% of tax outstanding.
• 6 months late: further penalty of 5% of tax still outstanding.
• 12 months late: further penalty of 5% of tax outstanding.

And on top of all this:

Interest will be added to any tax paid late including interest on unpaid penalties.

If you feel that you had a reasonable excuse for not filing on time it is possible to appeal.

Later this year your solicitor, or property conveyance person, will be required to file new forms with the Stamp Duty Land Tax Office when you buy a property.  The regulations allow old forms to be used, or the new forms, from 1 April 2011 to 3 July 2011. After 4 July 2011 only new forms can be filed.

No cause for alarm thus far.

Unfortunately the devil is in the detail!

The new forms require that each lead purchaser provide the following unique identifier when completing the forms:

• Individuals – their National Insurance number, or
• Companies and Partnerships – their Unique Tax Reference (UTR) or VAT registration number.

Wonder what HMRC will do with this additional information? No doubt they already have, or will be, setting up tracking processes that link property purchases to the lead purchaser’s tax file.

Changes that will affect Employer Annual Returns and starter and leaver PAYE forms:

• From April, employers with fewer than 50 employees must now send starter and leaver forms – P45s, P46s and similar pension information – online to HMRC.

• All employers who send their Employer Annual Return to HMRC after the 19 May filing deadline will now receive a late-filing penalty. Previously, an extra-statutory concession gave employers extra time before HMRC charged a penalty, but this has been withdrawn.

• From this year, employers will be liable to a penalty if they file their annual return on paper. Last year, no penalty was charged for employers with five or fewer employees. But these transitional arrangements have now ended.

• HMRC will also be issuing PAYE penalties this spring for the first time in two key areas:

1. Penalty notices will be sent out in April to employers with 50 or more employees who have not filed starter and leaver forms online to HMRC. The first penalties will apply for the three month period to 5 April 2011, with further penalties being issued on a quarterly basis.
2. From May this year, HMRC will start sending out penalties for late payment of PAYE. Employers will be liable for a penalty if they haven’t made PAYE payments on time, and in full, from April 2010. The amount of the penalty will depend on the amounts paid late and the total number of late payments made. Penalties will be charged after the tax year-end.

Further information is available on the changes from the HMRC website.

George Osborne today outlined plans to “fuel the tank of the British economy” as he announced a raft of measures to help families and boost business.
Some promises for small business owners:-

• No new regulation on firms with fewer than 10 staff for three years! Believe that one?

• Scrapping legislation that would have given staff of companies employing less than 250 people the statutory right to request time off to study or train. Although they might not know it, employees at larger companies already have that right.

• Business rate relief holiday for small firms extended for another year

• New rules to require planners to prioritise growth and jobs

• The mileage rate increases to 45p per mile for the first 10,000 miles from today. This is the amount that can be claimed ‘tax free’ for use of a car on business purposes.

• Small companies’ research and development tax credit rises to 200pc in April and 225pc in 2012
  

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Mr Osborne announced plans to introduce enterprise zones, in cities including Manchester and Liverpool, cut corporation tax and slash £350 m of red tape in a Budget which he said would help make Britain the “best place in Europe to start, grow and finance a business”.
In what Mr Osborne described as an “historic step”, consultations are to begin on merging national insurance and income tax.

WARNING whilst it might be logical, this is likely to be very bad news for small business owners. The self employed pay a lower rate of National Insurance than those in employment and people running their own limited company can avoid national insurance all together by paying dividends. If the tax rate is increased to include what was national insurance, then business owners are very likely to end up paying more!!!!!!

The full rate of corporation tax is to be reduced by 2% from April 1 and by 1% in each of the following three years. It will then be just 23% not much different to the rate for Small Companies. The government had previously announced that the corporation tax rate for small companies would fall from 21% to 20% in early April.
Mr Osborne announced an increase in the income tax threshold to £8,105 from April 2012. Fuel duty will be cut by 1p per litre from 6pm tonight.
A total of 21 enterprise zones, targeted at areas where the economy has struggled and offering tax breaks and discounts on rates, are to be introduced.
Other highlights included an £200m extra to be invested in regional railways – including schemes in Manchester, which Mr Osborne said would speed up journeys between Leeds and Manchester. There is a plan for a rail link between Piccadilly and Victoria stations.
Also 40,000 new apprenticeships for young unemployed people; and an extra £2bn being provided for the Government’s Green Investment Banks, which will be introduced a year earlier than planned in 2012.
Mr Osborne described the existing 50% top tax rate as a “temporary measure” but said it was not the “right time to remove it”.
The inheritance tax (IHT) rate will be slashed by 10% for wealthy individuals who leave at least a tenth of their estate to good causes as part of a new drive to boost legacy giving to charities and the arts. Osborne told the Commons: “If you leave 10% or more of your estate to charity, then the government will take 10% off your IHT rate. Let’s be clear: no beneficiaries will be better off, just the charities to the tune of £300m. I want to make giving 10% of your legacy to charity the new norm in our country.”
He described small businesses as the “innocent victims of the credit crunch” and announced plans to introduce export credits to help SMEs, and £100m for new science facilities.
He doubled the size of entrepreneurs relief to £10m (All chancellors love to double at least one tax relief in any budget) .
Income Tax relief on Enterprise Investment Scheme increases from 20pc to 30pc next month
Mr Osborne pledged £250m to help 10,000 first-time homebuyers purchase newly built flats and houses in England and increased the charge on ‘non-doms’ to £50,000 for those who have been in this country for more than 12 years.

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For those of you uncomfortable with computer jargon phishing is defined in Wikipedia as “a way of attempting to acquire sensitive information such as usernames, passwords and credit card details by masquerading as a trustworthy entity in an electronic communication.”
In other words fraudsters are emailing taxpayers and pretending to be HM Revenue & Customs. Some of their antics are becoming quite sophisticated but all are designed to encourage you to part with sensitive personal information; particularly your credit card details!
HMRC have confirmed that they would never email taxpayers about any of the following issues, all of which have been the subject of bogus email campaigns.
1. A tax rebate
2. Any request for bank details
3. Any request for your PayPal details
This is what HMRC have published on their web site:
“HMRC will never send notifications of a tax rebate by email, or ask you to disclose personal or payment information by email.
You should never disclose your personal and/or payment information in reply to an email that may look like it’s from HMRC, you may well be revealing your details to a fraudulent website.
If you have received an email claiming to be from HMRC that you suspect may be fraudulent, please forward it to phishing@hmrc.gsi.gov.uk.
However, if you have already given any of your personal information, for example your HMRC User ID, password or National Insurance number, in reply to a suspect email please forward brief details to security.custcon@hmrc.gsi.gov.uk.
Please do not disclose any of your personal details or information in the email report to HMRC. However it would help HMRC to investigate if you would tell us the type(s) of information that you disclosed to the suspect website. For example – I gave my Name, Address, Date of Birth, bank card details, HMRC User ID etc.
HMRC will attempt to provide a response to all HMRC related phishing emails and take action to remove reported websites.”

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If you have a commercial furnished holiday let within the EU, then there is potential for a tax refund.

Did you know up to 30% of the purchase price of a furnished holiday letting may be eligible for capital allowances? If these allowances are higher than your profits from rental income, any excesses may be set against tax payable on general income such as salary or business profits. There is a limited window of opportunity to make use of this “set off”, or sideways loss relief, as it will only be available until 5th April 2011.
Capital allowances are available on plant and machinery such as fitted kitchens, plumbing, central heating, loose furniture, and equipment.

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How it works
Typically, the level of plant and machinery is between 10 and 30% of the purchase price of the property, for example:

On a £500,000 property in Spain, the potential allowances are up to £150,000 made up of heating system, swimming pool, sanitaryware and electrics, amongst many others

This would translate to a total tax saving of £75,000 for a 50% tax payer!

What conditions must you satisfy?
The property must be in the UK or in the EU
The property or properties must be run on a commercial basis
Available to let for 140 days per year, and actually let for over 70 days per year
Not let to long term tenants for over 155 days per year
Long term letting is to the same person for over 31 days

At first glance, Paul Mellor’s recent Tribunal victory was nothing to write home about. Mellor, a self employed electrician living in Ruislip, successfully argued his home was his business base and won his appeal against an increased amendment to his self assessment, in which HMRC had disallowed a proportion of his motor expenses. HMRC had contended Mellor’s home could not be considered to be his business base.

Mellor travelled from his home to the various sites he was engaged to work at and claimed business mileage when he closed his front door and got into his car to set off for work. The majority of readers familiar with this subject will immediately recognise that Mellor should have won because of the precedent set by the Horton v Young (40TC60) tax case. As usual, HMRC sought to apply the factors featured in the Newsom v Robertson (33TC452) tax case. The full decision can be found at www.financeandtaxtribunals.gov.uk/Aspx/view.aspx?id=5275

What is interesting about this victory is the thinking behind the Tribunal’s decision, as it potentially reignites the whole debate about what constitutes the business base for all trades and professions, and may be particularly relevant to professionals such as Hospital Consultants and barristers.