Capital allowances seem rather old hat these days. However, experience tells us that car dealerships miss out on quite hefty amounts of tax relief when developing sites or creating new ones. Tax breaks on capital expenditure are available in many areas, but lack of knowledge, lack of planning and lack of detail – plus the desire to push the job through fast – mean crucial claims get missed. Indeed, for every car dealership capex project I’ve ever assessed I’ve uncovered greater tax-relief opportunities than originally claimed.
There are several ways to approach capital allowance claims depending on the project. A portfolio of works across several sites can be a complex beast but offers greater opportunities than single-site claims. With single-site claims we look at all the costs on a detailed line-by-line basis, then analyse and prepare a claim. A multisite approach involves gathering larger volumes of information from numerous sources. This requires all the appropriate departments – from property to financial – to be linked so they can supply the right data at the right time.
Clients undoubtedly get the best results when they involve us early in the process. That allows us to tee up all the appropriate departments, plus the contractors, developers, architects, engineers and consultants to ensure that they provide suitable, timely information.
Whether working on single sites, multi-sites, future projects or historical reviews, we get a real buzz from turning the data provided into substantial financial gains for clients. For example, we recently reviewed £30m of historic capex costs – including land – for one car dealership. We improved the claim by more than 4% – equating to £1.2m.
Several types of capital allowance often get overlooked. But before going into those, there’s one recent key update to note: before June’s snap election, Chancellor Philip Hammond said he would give 100% year-one relief for commercial electrical car-charging points. However, due to the election this relief was not enacted. The expectation is that it will probably make the statute book in the next budget.
Here are the capital allowances that tend to get overlooked:
- Business Premises Renovation Allowances
This relief is relevant when the project involves the rejuvenation of a building that has stood empty for 12 months, provided it is in a “deprived area”. However, the term “deprived area” is somewhat misleading in this case and city centres including Leicester, Nottingham and Derby all have eligible spaces. In fact, unexpected locations are often included, such as Colmore Row – one of Birmingham’s most prestigious business address. (I once worked on an office development near Colmore Row that received £15m of qualifying expenditure under BPRA).
Business Premises Renovation Allowances offer 100% relief on most building works but are capped at €20m. The other important thing to say about Business Premises Renovation Allowances is that they ended in April 2017. However, depending on your year-end you have up to two years from that date to claim… the clock is ticking.
- Enhanced Capital Allowances
These are incentives to use green technologies to make buildings more efficient. Heating and water systems, lighting and air con that meet certain criteria result in 100% relief in year one. That means, for example, that if you spend £1m on appropriate lighting, you would save £200k in tax in year one. But if you don’t claim relief in year one, you must spread it out over 30 years. Many businesses miss out on this allowance.
We are able to help car dealerships with financial modelling in this area. Efficient green systems often have greater price tags, so that cost must be weighed up against the potential tax savings.
- Thermal Insulation, Solar Panels & External Solar Shading Relief
Thermal Insulation is often missed because people wrongly see it as cladding and therefore classed in the ‘building’ category.
Solar Panels, meanwhile, fall into one of two categories: if they are ‘solar thermal’ and therefore heat water, they qualify for Enhanced Capital Allowance and 100% relief in year one; if they are ‘PV’ panels that simply generate electricity, they do not qualify for accelerated relief and it is spread over 30 years.
Finally, external solar shading is a technology designed to reduce energy consumption in buildings. Brise-soleil fins on windows allow light through but reflect heat, meaning air con systems don’t have to work so hard. A relief of 8% is available on external solar shading but, again, this is often overlooked.
- Enterprise Plant and Machinery Relief
This may be relevant for car dealerships if there is an industrial element on site, such as a bodyshop or car maintenance facility.
- Land Remediation Relief
This comes into play when you have to deal with nasties in the ground that you didn’t put there yourself.
As we’ve already touched upon, there are several options when handling capital allowances’ claims for car dealerships:
Statistical sampling: This is relevant for larger dealerships as you need at least 15 projects to qualify. As the name suggests, we take a sample of projects of a similar type, work out claims for them and then extrapolate them across the portfolio for up to three years.
Template and tax manual: Here we produce a template and ask the quantity surveyor to populate it with data.
Single-project reviews: As previously mentioned, with these we assess the building on a standalone basis and maximise the claim on a line-by-line basis.
Annual capex review:For this option, we look at spend across the whole portfolio. A dealership might be refurbishing its entire portfolio, in which case we would maximise claims across all sites.
Property sales and acquisitions
Finally, a word on property sales and acquisitions… Dealerships and sites are being sold and acquired all the time. It’s important to find the best possible tax position when acquiring or selling sites by understanding exactly what capital allowances have been claimed to date, and what could still be claimed due to rule changes. The key thing is to talk to someone before agreeing the deal, ideally at the heads-of-terms stage. There are several factors to consider. For example, you can pass allowances onto a buyer, which might give you leverage for a better price.
So there you have it. Even though capital allowances might seem like old hat, the potential advantages should not be ignored by car dealerships. Impressive gains can be made, whether through review of historic capex or – even better – by plotting your relief claim before kicking off a new development. What could you claim?