10th Mar 2020

Claiming Capital Allowances on an Office Fit Out

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Designing a workplace to meet the needs of your people has so many human benefits, but a shiny new office fit out can save you some tax too!

For this blog, we’ve teamed up with Paula Wheatley from Charnwood Accountants to discuss capital allowances. In other words, to let you know how you can get tax reductions on your office fit out.

So what is capital allowance?

Put simply, a capital allowance is an expenditure that a UK or Irish business can claim against its taxable profit.

How can you claim capital allowances?

Paula told us, “you can claim capital allowances when you buy assets that you keep and use in your business, such as cars, printers, computers, etc. But what some people don’t know is you can also claim on items called fixtures and fittings and integral features like air conditioning, work surfaces, heating systems and more!”

“Plus, these qualifying capital allowance items can be included within lump sum costs for infrastructure works, so considering costs and asking for detailed breakdowns from contractors is essential if you want to claim.”

What about the savings?

To figure out exactly what you can save, we first need to think about annual investment allowance or AIA.

Paula explained that:

“each year a business gets an annual investment allowance and if the expenditure on qualifying items doesn’t exceed the AIA then the entire investment can be deducted from your profits, before calculating the tax.”

It does vary, but currently AIA is £1 million and will be until December 2020.

What if you run out of annual investment allowance?

“AIA is currently pretty extensive,” according to Paula, so most businesses are fairly unlikely to run out. “But if you’re a business that invests heavily in machinery, there is the potential that you’ll exhaust your AIA before taking into account your office refit. If that’s the case, then tax allowances are still available, but they’re spread over a number of years. Therefore, it’s important to plan and review your capital spend across financial years to maximise AIA.”

What if we’ve used grants to fund our expenditure?

Unfortunately, tax relief is only available on the actual cost to the company. So where a grant has been used to fund a purchase, only the net amount (i.e. cost minus the grant amount) is available for tax relief.

An example

We know, it can get a little confusing! But luckily, Paula provided us with this example to demonstrate.

Imagine this is your refit bill:

Item Cost
New office furniture  7,000
Air conditioning  8,000
Decorating  4,000
New flooring  4,000
Staff cinema room 12,000
35,000

 

Everything on there is tax-deductible in some way. New office furniture and air conditioning qualify for AIA, and decorating is classed as repair and goes through the profit and loss account.

Flooring is a little trickier because, in relation to capital allowances, it doesn’t qualify. But, if we were to simply replace the flooring, e.g. a laminate flooring with new laminate flooring of the same quality, then we would have the basis to argue it is simply a repair and then a tax reduction is available.

As for the staff cinema room, we’re assuming that we’ve kitted a room out with comfy seats, a large screen, audio equipment and a projector, all of which class as plant or machinery (those are tax terms!) and therefore qualify for AIA.

Therefore, if we rework the cost of our refit:

Invoice Tax saving Net cost
New office furniture  7,000 (1,330) 5,670
Air conditioning  8,000 (1,520) 6,480
Decorating  4,000 (760) 3,240
New flooring  4,000 CAPITAL 4,000
Staff cinema room 12,000 (2,280) 9,720
35,000 (5,890) 29,110

 

It’s now nearly 17% cheaper!

Want to claim capital allowances on your office fit out?

If you’re looking to transform your workplace, our expert team of interior designers, project managers and subcontractors will ensure your one-of-a-kind office fit out project is completed on time and on budget. And we’ll even provide a detailed breakdown to make your capital allowance claim easier.

Fill in the form below to book your free workplace assessment with one of our office design specialists.

And of course, a big thanks goes to Paula for teaming up with us on this blog and teaching us all about capital allowances.

Author:

Rachel Biddles

Operations Director