Why GPs can’t afford to ignore capital allowances
Like many service providers in the public sector, the government expects GPs to deliver more services with less money.
There is pressure on GP funding owing to several factors, including:
- Year on year real-terms cuts in GP net income
- Rising patient lists
- Demanding patients
- More elderly patients with long-standing and complex needs
- Continuing effects of GMS funding changes, e.g., the move away from outcomes-based to core funding
As GPs emerge from COVID 19 lockdown, the funding landscape is more uncertain than at any time in living memory. So, GPs can expect continued pressure on cash flow and finances generally.
Capital allowances are essential in maintaining good cash flow
GPs engaging in qualifying activities can deduct capital allowances from taxable income and so save tax.
Yet, information from NHS Digital suggests that the amount of money GPs are claiming for capital allowances is negligible. The latest NHS data for England indicates that the average GP with total expenses of £228,700 claimed just £1800 in capital allowances in 2016/17.
What are capital allowances? Tax relief on certain capital expenditure typically:
- Office furniture
- Building fixtures (e.g., air conditioning, electrical wiring, heating, flooring, cold water systems, lighting)
- Kitchen and sanitary fittings
- Machinery and equipment
- There are special rules for environmentally-friendly equipment, e.g., energy-saving boilers, and electric cars.
- The relief is available to building owner-occupiers and leaseholders and is not affected by how you pay for the asset.
Areas where allowances go unclaimed
Fixtures need to be approached with care since these items become integral to the building and transfer with a change in ownership. Property buyers must take steps to preserve or utilise any capital allowances to relieve their tax burden.
Owners often forget about fixtures when a building changes hands. The seller may overlook fixtures because their business was not eligible, e.g., a charity. Sometimes the owner is not aware that the fixtures exist, or a lack of know-how and expert guidance means that they do not attempt to determine the value of any existing fixtures and capital allowances available.
A seller may well need to survey a building to realise just what allowances it has missed as these may impact the potential sales price. Equally, buyers need to do their due diligence. Fixtures must be pooled, and the disposal value agreed if the current and future purchasers are to claim capital allowances on fixtures going forward. A section 198 election (s199 for leaseholders) fixes the cost of capital allowances transferred to the buyer.
What should practices do?
Review your premises related expenditure with your advisor to ensure they have pooled all eligible items for capital allowance purposes.
The practice should plan and discuss capital expenditure with their advisor to ensure that they maximise claims.
Take care regarding the timing of expenditure on fixtures. Relief could be restricted if specific timing rules on renewing fixtures are not understood.
If you have purchased property within the last two years, review your conveyancing documents to check that parties gave serious attention to capital allowances. If not, you should seek specialist help from your accountant or advisor.
It is not unknown for fixtures to account for up to a third of the purchase price. Failure to address the issue may mean that significant tax relief is lost, and future buyers of the premises will also lose out.
Ensure sound financial and IT systems are in place to support good record keeping and the claim process.
If you would like more information on capital allowances please email “CA” to firstname.lastname@example.org