HOW would you feel if you could ask the taxman for tax relief on 30% of the cost of commercial property or, even better, ask for money back from the Chancellor and stay completely within the tax rules?

Not many people know that commercial properties have plant and machinery hidden within the building. This lack of knowledge means that valuable tax relief is missed when a business builds a new property or buys a secondhand building.

Although this looks like magic – turning an expense into income – the process uses the capital allowances rules and a good tax adviser, but how many businesses ask about tax issues when buying or refurbishing property? Other issues such as the physical move, last-minute legal problems and keeping the business running are the priority. In many cases tax is forgotten.

As a result many businesses pay more tax than they need.

When buying a new or secondhand building, identifying parts of the building that can qualify for tax relief can produce relief that writes-off costs as capital allowances. Capital allowances are due on the cost of plant or machinery and have different rates depending on the type of plant.

They are available on the construction, purchase or refurbishment of a building whether a factory, office or any type of commercial building. There are separate rules for dwellings.

Rates of allowances available range from 10% to 100% depending on the type of plant identified.

Tax relief is spread over several years and provides cash flow benefit by reducing tax payments. It may turn a profit into a loss or increase an existing loss.

Losses may reduce tax on current or future year income or gains or may even generate a repayment of a tax liability arising in a prior year.

The benefit depends upon the type of business. Individuals or partnerships will pay tax at rates up to 50% whereas companies pay tax at rates up to 27.5%.

Planning at an early stage means that energy-saving or environmentally beneficial plant that attract 100% allowances can be identified.

If the business is a company any loss created by this type of plant may be given up to the taxman who, in return, will give a tax repayment of up to 19% of the loss arising.

There is an additional piece of magic. When a building is sold the amount of capital allowances does not necessarily reduce the cost of the property when calculating a capital gain.

There may be adjustments to the capital allowances calculation but proper tax advice before the sale may weave a little more magic.

Iain Corner, audit director of RSM Tenon said: “Our job is to work with businesses to identify the claims available when they are buying or constructing a building, but all is not lost if the property has already been bought or built.

“A claim may be made in a later year although though this will delay the tax relief to that later year and lose the 100% allowance.

“Even though the business does not know it has the expenditure, we may be able to conjure up an unexpected tax windfall.”

For more information please contact Iain Corner, Audit Director of RSM Tenon, on 07800 617408.