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Understanding capital allowances

Nearly 90% of GP practice owners could be due a tax windfall because of unclaimed capital allowances. Mark Tighe explains how the system works.

Heating systems are one item that surgery owners can claim capital allowance tax relief on (Picture: iStock)
Heating systems are one item that surgery owners can claim capital allowance tax relief on (Picture: iStock)

Given that the main reason people visit GP surgeries is to be treated for an injury or cured of an illness, the idea of turning a practice upside down and shaking it is a little bit odd.

But that image – of a health practice held aloft with beds, blood pressure machines, desks, syringes, doctors, receptionists and poorly patients toppling out – is useful in helping explain what capital allowances are.

Intrinsic fabrication

Essentially, everything that wouldn’t fall out of a GP surgery if you turned it upside down and shook it — what’s referred to as the building’s ‘intrinsic fabrication’ — is what you can claim capital allowances tax relief against.

There is a lengthy list of items that qualify, including lighting and heating systems, pipework, water sprinklers and electricity cabling — and other ‘embedded’ features such as security installations and ventilation.

All of these can produce a huge tax windfall resulting in thousands or even tens of thousands of pounds for the GP practice owner.   

The good news is that GPs tend to fare very well after carrying out a capital allowances audit compared to other commercial property owners. The reason for this is that doctors’ surgeries usually consist of a sizeable amount of ‘intrinsic fabrication’.

For example, the extra electronics and lights required to operate equipment and the need for sinks and plumbing in each examination room are particularly advantageous from a capital allowances perspective.

Tax windfall

In our experience nine out of 10 GP practice owners will be due a tax windfall, with the average amount of unclaimed capital allowances found in GP practices in the region of £85,000. But it can be a lot more than that.

For example, an investigation for a medical surgery in North Yorkshire identified £402,678 of unclaimed capital allowances in the intrinsic fabrication of the practice. Disposal, water and heating installations proved especially lucrative.

This had made a massive difference to the practice in question, since the net tax benefit to them (at their higher tax rate) was £161,071 (40% of £402,678). This tax relief was given in the form of an initial lump sum payment and then ongoing tax relief.

Unfortunately, because of the intricacies of capital allowances and how to identify them, many GPs are usually in the dark about the potential sizeable tax rebate that comes from unclaimed capital allowances.

Following new laws announced in the Finance Act 2012, it has become even more important for GP practice owners to have capital allowances on their radars. The reason is that, since 2014, any unclaimed capital allowances must now be identified and documented before or at the point at which a commercial property is bought or sold — or they could be lost forever.

Identifying capital allowances

So what’s the process of identifying unused capital allowances? You firstly need to establish the capital allowances history of the property. This involves looking at the details of any prior claims made by the accountant. This process may unearth items that have not been claimed for and which you could receive tax relief on.

A specialist capital allowance firm, or an accountant with a good understanding of capital allowance, should be able to help you do this.

It’s worth pointing out that most capital allowances firms will only charge a fee if the capital allowances identified are substantial.

Ultimately, capital allowances are a right and not a privilege, and if GP practice owners have incurred the expenditure or costs involved in buying, building or adjusting their building, then they deserve the tax benefit.

  • Mark Tighe is managing director of the capital allowances specialist, Catax Solutions
Capital allowances in brief

Capital allowances are basically a form of tax relief available to anyone incurring capital expenditure buying, building, or making adjustments to commercial property. In plainer English, they are a way to reduce your tax bill.

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