Time Waits for No Claim: The Pitfalls of Delay
Capital allowances are the only way for investors and occupiers to reduce their UK tax bill by claiming for what has been spent on buying, building, refurbing or fitting out commercial property. Most concentrate on what and how much you can claim – but a factor that is often overlooked is when you claim.
The current capital allowance regime is designed to incentivise investment in property and business equipment including fixtures – it doesn’t reward delaying a claim.
Although there’s technically no fixed deadline to claim (as long as you still own the property or equipment), delaying can severely limit your claim options, what you’re entitled to, as well as how much and how fast you can claim.
Here’s why the timing of a claim really matters.
Why Timing Matters
The legislation strongly favours claims made in the year of expenditure. Delay often leads to:
Lost entitlement to claim generous accelerated reliefs (150%, 100%, and 50%).
Eroded SBA claims which have ‘use it or lose it’ rules.
Potentially missed statutory deadlines.
Lost flexibility in utilising losses through carry-back or carry-forward claims and group relief.
Reduced and weakened claim quality due to lost records or personnel.
Accelerated Relief vs Slow Relief
Prompt claims (in the year the expenditure is incurred) can qualify for:
Annual Investment Allowance (AIA): 100% relief on up to £1 million of qualifying plant and machinery, including second hand assets. Must be claimed in the year expenditure is incurred.
Full Expensing: Uncapped 100% first year relief on brand new plant and machinery (companies only). Also must be claimed in the year expenditure is incurred.
50% First-Year Allowance (FYA): Available for brand new special rate plant, including solar panels, lighting, electrical systems, heating, ventilation, lifts, escalators, and plant with a life exceeding 25 years. Also must be claimed in the year expenditure is incurred.
Land Remediation Relief (LRR): a 150% relief for investors and occupiers on cleaning up contaminated land and buildings that must be claimed in the year the expenditure is incurred, a 50% relief for developers when the land or building(s) are sold.
Research and Development Allowances (RDAs): 100% relief claim on buildings and fixtures used for R&D purposes, it must be claimed in the year the expenditure is incurred.
Structures and Buildings Allowance (SBA): 3% per year from the date of first use, with no backdating - each year delayed means a permanent loss of 3%.
Writing Down Allowances (WDAs): 18% (main rate plant) or 6% (special rate plant) annually if accelerated reliefs don't apply.
Delaying a claim risks missing out on the accelerated reliefs shown above, restricting you to slower WDAs that are claimed over time. Although the total claim amount doesn't change, delays profoundly affect how quickly you benefit from the tax relief available.
Fixtures in Property Purchases: The Two-Year Trap
When purchasing commercial property, plant and machinery qualifying as fixtures can only be claimed if:
The Vendor agrees to pass across capital allowances on fixtures they have/could have claimed on, and:
A section 198 election is entered into and sent to HMRC within two years of completion, and:
· The same s198 election is included in the tax return that includes the inherited allowances.
Without this, the Buyer has no entitlement to claim anything on a purchase - and the tax-saving opportunity will be lost forever.
"But We're Loss-Making…"
You might think, "There’s no point claiming if I’m not paying tax, and we do understand this point. However, whilst a claim might not benefit you immediately, it’s very rarely better to delay just because you’re currently loss-making. Losses are far more flexible than capital allowances. They can potentially be:
Carried forward.
Carried back to previous tax paying periods.
Group relieved within a UK corporate structure.
Loss relief rules are less restrictive than delayed capital allowances claims, which cannot be backdated, are locked into the company and the period you start claiming and limited to the 18%, 6%, or 3% annual writing down allowances available.
We've modelled the tax impact with several clients, and unless you genuinely believe you'll never pay tax, it almost always makes sense to claim now, bolster losses and use the relief later.
Delay = Potentially Lost Evidence
Even where a claim is still legally possible, quality of information suffers with time:
Contractor records and cost plans get lost.
Contractors aren’t as helpful when they’ve been fully paid on a project.
Drawings, specs and breakdowns disappear.
Staff leave and knowledge gaps form.
Accounting or PM systems change, and data is lost.
The longer you wait, the information required for a capital allowances analysis can be lost and diluted. This doesn’t completely stop a claim being possible, but it will cost more to produce and is unlikely to be as maximised as it would have been with the original project cost and accounting information available.
The Cost of Delay: A Case Study
A business purchases a commercial property and carries out a refurbishment including:
£500,000 of fixtures forming part of the property purchase (via a section 198 election)
A £3,000,000 refurbishment, including:
£1,000,000 of new main rate plant and machinery expenditure
£1,000,000 of new special rate plant and machinery expenditure
£1,000,000 of SBA qualifying construction costs
Scenario A: Claim Made in Year One
In this scenario, the business claims the capital allowances available to them in year one, after a capital allowances analysis is undertaken:
By claiming straight away, this enables a year one deduction through capital allowances of £2.28m.
Scenario B: Claim Delayed for Three Years
Lets say the business delays the claim for a few years and misses the two-year window for the section 198 election — this means the inherited capital allowances are no longer claimable and only writing down allowances are now available for the refurb.
By delaying, the client can now only claim £270,000 as a deduction, £2.01m less than the year one claim.
This doesn’t even include the additional writing down allowances that also would have been claimed between year one and year three in Scenario A, yet clearly demonstrates the pounds and pence impact of delaying a claim.
Although no statutory deadline exists as long as you still own the asset, the capital allowances claim clock starts ticking immediately, and timing drastically influences value. As demonstrated above, the cash flow benefits of timely claims are potentially enormous, both for companies and especially for groups of companies.
Contact Tallex today to time your capital allowances correctly, ensuring it is optimised for you, your business and your wider tax strategy.
