Businesses are increasingly looking to save money by renovating old buildings rather than invest in expensive new commercial property ventures.
But a Midland tax expert said the Government is not doing enough to let companies claim the tax benefits that make renovation an attractive option.
Paul Edwards, director of taxation at accountants and business advisers Horwath Clark Whitehill, said that in a depressed commercial property market there are likely to be attractions in acquiring run-down empty premises that offer tax incentives.
But more needs to be done to simplify the process of claiming relief on disused commercial properties in need of renovation while they are brought back into operation, he added.
“The Business Premises Renovation Allowance is a valuable form of tax relief but extremely hard to claim,” said Mr Edwards. “We are 16 months into its five-year life and there is still a lack of clarity as to what actually qualifies for BPRA.”
He said HM Revenue & Customs needed to accept that most businesses did not know how the tax breaks work.
BPRA was introduced in 2007 to try to bring more empty premises back into use. But Mr Edwards said the way it had been handled had left many people confused when they should be taking advantage of the situation.
“A happy medium does need to be struck so that investors are encouraged to make full use of the incentives,” he said.
“In a slow economy, the marginal nature of many construction opportunities demonstrates the importance of exploring and exploiting any available relief early.
“I like the concept of BPRA – it brings back into use business premises that have been vacant for longer than 12 months within designated disadvantaged areas.
“The taxpayer is supposed to receive 100 per cent tax relief on the capital expenditure incurred.
“However our experience demonstrates that the interpretation is likely to sit with the Officer of Revenue and Customs and degenerate into a negotiated settlement.”
The first thing to clarify, said Mr Edwards, was the definition of renovation.
The Allowance was supposed to be available for converting a qualifying building into qualifying business premises, renovating a qualifying building that is, or will be, qualifying business premises and for repairs to qualifying business premises.
“There is, however, little specification within the legislation – or HMRC manuals – on whether pure fitting-out works qualify,” he said.
“Early feedback from HM Revenue & Customs has shown that they would disallow a BPRA claim on expenditure fitting out empty office space on property not deemed to be in need of renovation.
“This appears to be from the assumption that all fitting out works merely enhance the building as opposed to renovating or converting it.
“For a building to be a qualifying business premise, it needs to be used or available to let as a commercial premise, but who dictates when a premise is available to let?
“Surely this should be agreed between the landlord and tenant and could range from when a unit is in a shell specification, right up to a completed building under a turnkey agreement.
“Perhaps a line should be drawn between works done by a landlord and tenant in bringing a qualifying building back into business use. In my opinion fitting out should be part of the process of reviving and restoring a building.”
Mr Edwards said there were other areas of contention and one occurred when changes were taking place to the building as part of the renovation project, particularly where this included an extension to the original structure.
Extensions were only allowed for BPRA if they provided a means of getting to or from the qualifying business premises.”
This threw up confusing and contradictory factors on what provided the means of getting to or from the qualifying building. “When there is a true extension that provides additional useable floor space, rather than just ancillary works, clearly this should be excluded,” he added.
As with extensions, further development on adjacent land was excluded but there remained areas of confusion.
“Does this exclusion relate solely to the provision of additional space or also to site works, such as the construction of a car park or loading bay?”
Arguments could well be raised in terms of the deliverability of the project without such works he said. “If the addition of a car park is part of the planning consent for the conversion or renovation works to a BPRA qualifying building, then aren’t these works part of the renovation?
Under the Capital Allowances Act 2001, qualifying expenditure was capital expenditure incurred ‘on or in connection with’ the conversion or renovation of a qualifying building.
He added: “In my view the installation of any of the above works would qualify.”Businesses are increasingly looking to save money by renovating old buildings rather than invest in expensive new commercial property ventures.
But a Midland tax expert said the Government was not doing enough to let companies claim the tax benefits that make renovation an attractive option.
Paul Edwards, director of taxation at accountants and business advisers Horwath Clark Whitehill, said that in a depressed commercial property market there are likely to be attractions in acquiring run-down empty premises that offer tax incentives.
