|
Changes announced in the 2007 budget, which came into effect in April 2008, mean business owners should be even more receptive to partition walling when extending or building new business premises.
A case back in 1958, involving a firm of shipping agents in Hull set the precedent for the tax treatment businesses enjoy today on movable partition walling. Having initially been denied any tax relief for its expenditure on partition walling John Good and Sons had the decision over-turned when the case went to the Court of Appeal.
The original inspector’s view had been that the partitioning was part of the building and therefore did not attract any tax allowances.
The shipping agents argued that they had specifically instructed the architects to ensure that the interior of its new river-front premises was sufficiently flexible to allow for the changing requirements of the business. To meet this, the office partitioning used involved hardboard sheeting inserted into metal ribs which were screwed to the floor and ceilings. As such, the partitioning was relatively easily demountable.
At the Court of Appeal it was concluded that partitions, designed with the specific intention that they should be movable to meet the differing future needs of a business, were plant. Tax allowances were, therefore, due.
The court’s conclusion on this case remains the basis on which tax allowances can be claimed on partitioning today.
Satisfying this test is crucial for eligibility for allowances now available on plant and machinery. If the partitions were not movable they would be considered to be part of the building and no tax relief would be available.
New allowances result in accelerated tax savings
Having established that the expenditure is allowable the new annual investment allowance (AIA) introduced with the Finance Act 2008 comes into play.
The AIA, provides 100% relief on the first £50,000 worth of qualifying expenditure after the 6 April 2008 and thus increases the amount of relief immediately available to business owners.
Any qualifying expenditure above £50,000 then attracts a 20% writing down allowance (WDA).
It should be noted that the annual investment allowance is 100% of the first £50,000 of expenditure on all plant in a given accounting period and that a group of companies will only receive one allowance of £50,000 across the group. All the same – it’s an allowance worth having.
|
Special treatment in Enterprise Zones
If the building is in an enterprise zone, the allowance is 100% regardless of whether the item is plant or part of the building. This relief is however due to be terminated in 2011.
|
Significant Savings over 6 Years
The availability of the 100% annual allowance and 20% writing-down allowances means that 87% of expenditure will attract tax relief after the first six years. For example the allowances on an expenditure of £100,000 on partition walling can be illustrated as follows:
| Year |
Balance |
100% AIA |
| 1 |
100,000 |
50,000 |
| |
|
20% WDA |
| 1 |
50,000 |
10,000 |
| 2 |
40,000 |
8,000 |
| 3 |
32,000 |
6,400 |
| 4 |
25,600 |
5,120 |
| 5 |
20,480 |
4,096 |
| 6 |
16,384 |
3,277 |
| Total |
|
86,893 |
The writing-down allowances continue in future years on the ever decreasing annual balances.
For sole traders and partnerships, where the highest rate of income tax (including national insurance) is 41%, the availability of allowances on £100,000 expenditure will save £35,626 spread over six years. For companies where the maximum rate of tax is 29.75%, the potential saving is £25,850.
The message to AIS member clients is to ensure that partitions qualify for tax allowances wherever possible. Think movable.
For more advice on the new annual investment allowance or other tax treatment on building and refurbishment projects contact John Osborne of Prime Chartered Accountants on 0121 711 2468 or visit www.primeaccountants.co.uk
|
