I recently read an article in one of our national newspapers that identified a national group as paying little or no tax for a number of years. Also, the newspaper predicted the group was likely to carry on doing this for a few more years to come.
It got me thinking: “What did this group do wrong?” In this era of “ethical” or “moral” tax rates as opposed to actual ones, the article criticised the group for using its entitlement to capital allowances inferring avoidance of some “moral tax” code.
It got me thinking, “What did this group do wrong?”
As a tax adviser with more than 18 years of specialising full time in capital allowances, I’d agree that it’s fair that companies should pay the right amount of tax.
However, when companies use the capital allowances regime to reduce tax, they can only do that having spent significant levels of cash on building, buying or fitting out trading sites.
This in itself creates taxes for the government – SDLT, NIC and PAYE spring to mind immediately. And in return, the trader gets tax relief on some of the costs.
This isn’t tax avoidance
Using capital allowances is about as aggressive on the tax avoidance scale as people using their cash ISA allowance each year. It’s a relief allowed by the government, partly to incentivise construction and expansion of businesses. So, businesses shouldn’t be criticised by taking the benefits that it brings.
The reality is that any company that has taken specialist capital allowances advice is not avoiding any tax. They are simply taking the tax relief they are entitled to.
A recent project demonstrates this…
A doctors’ surgery with a pharmacy attached in the West Midlands was developed by the company a number of years ago. No capital allowances advice was given at the time.
Yet, after changing advisers (to us!), the lack of a claim was identified, and we delivered a claim equivalent to 40% of the costs.