Tax relief for buildings? A Capital idea!

From production facilities and storage buildings to tasting rooms and hospitality areas, investment in property can be essential for a growing vineyard. While most running costs of a business receive tax relief as they arise, expenditure on buildings does not usually get full tax relief straight away. This can create a delay between incurring the cost and receiving the tax saving associated with it.

Tax relief for buildings

Until recently, tax relief for expenditure on buildings was only received when they were sold, as that was when the capital gain on the building was realised. However, the Structure & Buildings Allowance (“SBA”) was introduced in 2018 to give some tax relief during the building’s use.

This relief is given at 3% per year, meaning that a £200,000 building will only result in a corporation tax saving of around £1,500 a year.

We can improve upon this, by looking at the building in more detail, and considering some of the elements involved in construction and fitting out. Expenditure on parts of the building that qualify as plant and machinery are entitled to other capital allowances, leading to accelerated tax relief.

Capital allowances for plant and machinery

Capital allowances are how tax relief is given for expenditure on equipment used by a business. Different types of equipment qualify for different capital allowances, but the majority of plant and machinery will receive full relief in the year it is bought.

Plant and machinery has a broad definition, and some of the costs that qualify might be surprising. For example, ventilation systems are a part of most commercial buildings and are considered to be plant and machinery. While a large part of the cost of a building is the structure itself, almost all buildings will have some eligible elements, even if it is only a water or electrical supply.

Other costs that qualify for capital allowances are plant and machinery used in the business. This includes wine production equipment such as grape presses, fermentation tanks, temperature control systems, or bottling machines, but it can also include the fit out of a shop or hospitality space.

Tax relief for building a winery

Building a small winery might cost £400,000. If the whole cost is treated as a building, then only Structure & Buildings Allowances will be available, and the maximum corporation tax saving will only be £3,000 per year.

However, a more detailed breakdown of the cost might show that £50,000 of the costs were on integral features, including water and electrical systems. In addition, £150,000 of the costs might be for production equipment. That would allow capital allowances of £200,000 to be claimed in the year of construction, increasing the potential corporation tax saving to £51,500. This acceleration of the tax relief offers a huge cashflow advantage for a growing business.

Tax relief for hospitality facilities

Another example could be converting a barn into a tasting room and wine shop for £200,000.

If the whole cost is treated as the capital cost of renovating a building, then only Structure & Buildings Allowances will be available, and the maximum corporation tax saving will only be £1,500 per year.

But again, a more detailed review of the costs might show £20,000 related to general repairs to the existing building which can be claimed as a deduction in the year, £50,000 relating to adding the necessary utility systems and air conditioning to make the space more comfortable, and £75,000 on furnishing it, including the installation of toilet facilities and a kitchenette.

This would increase the potential corporation tax relief in the first year to more than £36,000, helping to offset the cost of the investment.

What is needed to make a claim?

Clear records of all costs incurred should be kept to support the strongest possible claim. It is important to obtain detailed invoices and useful supporting information from contractors, clearly setting out the services provided and the nature of the work undertaken. These records allow each item of expenditure to be properly analysed, the available tax relief to be identified, and evidence to be retained in support of the claim.

How we can help

Carpenter Box’s friendly and knowledge tax team can help you determine what costs are eligible for tax relief, and help you prepare your claims, guiding you through the process to make it as simple as possible.

We can also advise on ways to maximise your relief. We recently assisted a client in reducing their upcoming corporation tax bill by £35,000, by changing their accounting year end to claim tax relief on their construction sooner than expected.

Get in touch with our specialist Vineyard team on 01903 234094 to discuss your plans, and how we can support you.