The tax treatment of the acquisition of premises is totally different to the acquisition of equipment. The premises themselves do not attract capital allowances at all; instead they form the basis of any future Capital Gains Tax computation (I am not going into CGT in this article).
To add insult to injury, if the premises are not usable, then any expenditure incurred in making them so is also not allowable. This was established in two landmark cases; in the first a ship was purchased which was unseaworthy – the claim for necessary repairs was rejected; in comparison a cinema was purchased which was in a very poor state of repair – remedial works were allowed because the cinema could still be used whilst being refurbished.
Let us assume that your newly acquired premises are usable, but you wish to make some structural changes so that they better suit your practice purposes. Dependent upon the nature of the building works, some is and some is not allowable for tax as follows: - note CA = capital allowances claim
Allowable against CGT on sale
Allowable as CA claim
Structural work – i.e. removing and building walls, extensions etc.
Fixtures and fittings
i.e. basins, cupboards etc.
Redecoration (in my view including preparation) and running maintenance.
It is strongly recommended that you discuss with you builder and accountant in advance how best to be invoiced for the works.
Another area of great concern is whether expenditure is being incurred on the setting for the business or on an asset of ‘enduring benefit’ to the business. Another two cases illustrate this point – in both instances a suspended ceiling was fitted into business premises. For a hotel it was argued that the suspended ceiling, together with its integral lighting system, helped to create the ambience of the hotel which enhanced trade – this argument was accepted and a CA claim allowed for the ceiling. For an office block it was decided that the main reason for the ceiling was to hide ducting and electrical conduit and did not actually have any impact on the work itself (have the judges ever worked in unsightly premises?) and therefore the expenditure was disallowed.
Currently the Revenue has decided, at a high level, that intruder alarm systems should no longer be allowed against tax. Their argument is that persons breaking into the premises may not actually be intending to either damage or steal and therefore the alarm system does not play an active part in the business.