By Clare Moore, Editor at Croner
Confusion surrounding capital allowance rules introduced in the UK Finance Act 2012 in respect of property embedded fixtures and fittings (PEFFs), which apply from 6 April 2014, could see businesses and organisations incurring unnecessary costs.
Neil Tipping, Senior CCH UK Tax Consultant says: “We have been receiving a large number of calls to our tax advice line from worried business and commercial property owners on the new rules. Most are afraid that after 6 April they won’t be able to make a capital allowance claim.
“We are concerned that they are being scared into making a claim now because they are relying on information in the media that, for the most part, is inaccurate.
The most common misconceptions centre on two new rules: the Fixed Value Requirement and the Mandatory Pooling Requirement.
The Fixed Value Requirement
The Fixed Value Requirement, which has been in force since 6 April 2012, essentially means that, where appropriate, a buyer and a seller of a commercial property must agree a value for fixtures and fittings and file an election with HMRC advising it of this value. This prevents either party being subjected to an enquiry into their returns on this aspect as the value used by the buyer and the seller will always be the same. It also stops HMRC from imposing a common value on both parties. This election is only appropriate where the vendor must bring a disposal value into their capital allowances calculations for the specific fixture concerned i.e. where allowances have been claimed on that fixture. If allowances haven’t been claimed, no election is possible.
The Mandatory Pooling Requirement
The Mandatory Pooling Requirement forces potential vendors, where appropriate, to identify and value fixtures and fittings in a building before it is sold and notify HMRC. This was put in place to ensure that fixtures and fittings only attract tax relief once. If a vendor fails to do this for sales of property on or after 6 April 2014, future purchasers will not be able to claim any capital allowances on fixtures and fittings.
Neil Tipping offers the following advice to businesses and commercial property owners: “If there is no property transaction and you, as the owner, are simply claiming allowances, the new rules do not apply and there are no time limit restrictions on your ability to claim allowances for property embedded fixtures and fittings. This requirement only applies where the vendor was entitled to claim allowances on PEFFs (i.e. not charities).
“If a property transaction took place between 2012 and 2014, then the transitional period (Fixed Value Requirement) applies if the vendor has claimed, which has a time limit of two years. If the vendor has not claimed capital allowances on PEFFs before, the new rules do not apply.
“For property transactions taking place in 2014 and later, the new rules apply, i.e. Mandatory Pooling and the Fixed Value Requirement within a two-year time limit. If the vendor was not entitled to claim allowances on PEFFs before sale, the new rules do not apply.
“Property owners are advised to keep adequate records of property embedded fixtures and fittings received with a newly purchased property and PEFFs subsequently added.”
Tipping concludes: “We would recommend that, if businesses are in any doubt, that they seek professional advice.”