Summary and implications

On 31 May 2011, HMRC published a consultation paper asking for comments on proposals to further regulate the manner of and the time periods for claims for retrospective Capital Allowances (or more properly Writing Down Allowances (WDAs)) on plant and machinery constituting fixtures. The intention is to introduce anti-avoidance proposals in the Finance Bill 2012.

  • HMRC are proposing to limit the time to “pool” and submit Capital Allowance claims to one or two years and introduce other anti-avoidance provisions.
  • This proposal follows hard on the heels of a previously announced reduction in the ability to claim Capital Allowances in that the annual rates for WDAs are to reduce to 18 per cent for normal items and eight per cent for long-life assets from April 2012.


The latest attack by HMRC continues an onslaught on WDAs. The Government has stated that the decrease in the rates of WDAs is required in order to pay for the decreases in the headline rate of corporation tax. However, this has a disproportionate impact on income tax (non-corporation tax) payees such as individuals and offshore entities.

Although property owners cannot depreciate plant and machinery constituting fixtures forming part of a property for tax purposes, HMRC does allow property owners to claim WDAs on such items. WDAs can be claimed to reduce the amount of income tax payable on the rental income from a property. These allowances can amount to a significant financial benefit to any qualifying property owners.

The rule of thumb is that as much as 30 per cent of the construction cost of a building can qualify for WDAs. Over the years, a specialist business has been developed by Capital Allowance advisers in assisting buyers and property owners in making retrospective claims from HMRC for WDAs on plant and machinery constituting fixtures.

Mechanical and electrical systems, air conditioning, lifts, escalators and even certain types of raised floors, suspended ceilings and partitions are potentially plant and machinery constituting fixtures for the purpose of claiming WDAs. Until April 2012, these allowances can be claimed annually at the rate of 20 per cent on normal items of fixtures, plant and machinery. For items of expenditure on long-life assets such as thermal insulation and integral features, WDAs can be claimed at a special reduced rate of 10 per cent.

Certain categories of property owners such as developers and tax exempt funds may not have been eligible to claim valuable Capital Allowances. However, current Capital Allowance legislation allows WDAs to be claimed at any time provided the fixture or plant is still owned and used in the business. Accordingly, in such circumstances, a detailed audit by buyers, or indeed sellers, before or at the outset of any transaction can "unlock" significant value for either party, depending on the strength of negotiation.

The ability to file late claims, or even reclaim at a higher level for an item of plant which has already been the subject of a claim, has enabled savvy buyers to claim WDAs which, because of the passage of time and/or loss of information by HMRC, means that HMRC stand little chance of successfully challenging any claim for WDAs.

What to do now?

The loss of the ability to claim historic allowances should not be underestimated. Our advice is that clients should:

  • Undertake an urgent audit of their portfolio to consider whether all known WDAs have been claimed at the current relevant rates;
  • Review whether there is the possibility for further retrospective enhanced claims for WDAs which are likely to become time barred following the implementation of the Finance Act 2012.