Did you know that in addition to claiming Capital Allowances on moveable fixtures and fittings used in your business you can also claim ‘Property Embedded Fixtures & Features’ Allowances or PEFFs, on the immoveable assets in your properties?
We came across PEFFs recently in discussion with a holiday let business on the Isle of Wight. It was interesting and is something that could be useful for some of our clients with hotel and furnished holiday let accommodation. It is also a ‘legitimate allowance’ that the majority of business property owners are unaware of. The main downside is that in order to apply for the allowance you need to use a specialist property surveyor who has experience in dealing with capital allowances and HMRC. Unfortunately, as a mere Accountant this is a service that most Accountancy firms cannot provide themselves and will have to contract it to a specialist.
We approached some of our clients to see whether they would like to apply for the PEFFs. There was some interest, so we approached a number of specialists to ascertain their charges. Most seem to charge only when the claim is successful and agreed by HMRC. So most will not charge an up-front fee, although some wanted to charge disbursements as they had to travel to the Island. The fee is normally a percentage of the agreed claim, and this varied from 3.5% to 7%.
Some background on PEFFs
PEFFs may be claimed on most types of commercial property, from retail or industrial units to offices and factories, to bars, hotels and restaurants. They can also be claimed on more specialised commercial properties such as nursing homes, doctor or dentists surgeries, sport centres and even data storage centres. PEFFs can also be claimed on residential buy to let properties that are let to more than one unrelated persons such as student accommodation.
An illustration of PEFFs for a holiday let property
Client A Purchases holiday apartments for £470,000 in 2006. Estimate Allowances based on the total purchase price of £470,000, estimated at £90,000 – £140,000. This will flow through to a total tax saving over time of up to £28,000, based on a 20% basic income tax rate. Even more beneficial is a higher rate tax payer.
Please note that you will need to check whether prior owners have claimed the allowances. This could potentially restrict the level of allowances available.
Advantages for our clients
1. The original purchase price is analysed between the building and the PEFFs. As in the above example this could range between £90,000 – £140,000.
2. The allowance can then be utilised by the client as an additional cost of running their business.
3. The maximum allowance in any one tax year is 18% of the allowance, and this balance of the allowance is reduced each tax year. The 18% can be restricted if you do not have enough profit, taking into account your personal tax allowances.
4. It is possible to resubmit your previous year tax return if you had profits available.
5. If your property was purchased after 2014 it may be possible to claim all the allowance in one year, but obviously you would need the taxable profits.
6. If you sell your property, then the unused PEFFs can be transferred to your purchaser. This could well increase the value of the purchase!
7. PEFFs have no impact on your capital gain if your business is sold
8. PEFFs are available to individuals, partnerships and limited companies.
Disadvantages for our clients
1. Having enough taxable profits, after taking into account their personal allowances
2. The upfront cost could be more that your tax saving in the first year of claim. Per the illustration if the PEFFs were valued at £125,000. The 18% allowance would be £22,500. Therefore, tax saving if profits available @ 20% tax is £4,500. Specialist fee say 5% of £125,000 is £6,250 plus VAT.
3. Although unlikely, there could be changes in the tax rules to restrict the PEFFs
4. As a basic rate tax payer how long will it take to utilise the PEFFs?
5. And would surplus PEFFs be of any value when the property is eventually sold? Remember the new owner can also claim PEFFs and your claim may restrict their ability to claim
6. You will need to provide the specialist with information relating to the purchase of the business asset.
At the Helpful Bean Counter we are enthusiastic about saving our clients’ money, especially if it is totally legitimate! Hopefully the above will help you to understand the issues involved in making a PEFFs claim. We are happy to help clients with this including negotiating a fee with the specialist. As your Accountant, we will have to be involved to submit or resubmit your tax returns. Unless this involved significant additional work we will make no charge for our services and will not take any commission from the service provider of your choice.
If you want to discuss this further than please contact Martin or Jane on 02393110395 or firstname.lastname@example.org