The business premises renovation allowance (BPRA) is coming to the end of its ten-year life cycle. It will no longer be available for expenditure incurred after 31 March (companies) or 5 April (unincorporated businesses) 2017. If you are likely to incur expenditure in the future that would qualify for BPRA, you might want to bring it forward to ensure you don’t miss out.
BPRA gives a 100% deduction against taxable profits in the year the expenditure was incurred. If any part of this is not claimed – for example if there are not enough profits to offset – writing down allowances at a fixed 25% of cost (i.e. not reducing balance) can be claimed over the next four years.
Valuable
BPRA is very valuable, as it covers specific types of expenditure which are not already covered by other rules – such as plant and machinery. So, what does qualify?
The type of expenditure where BPRA is relevant is where you’re converting or renovating unused qualifying business premises in a disadvantaged area. It is an incentive to address the problem with run-down and derelict shops. The initial cost of purchasing the premises is not covered.
HMRC gives the following as examples of qualifying expenditure:
- building work, for example the cost of labour and materials;
- architectural and design services, for example the detailed design of the building and its future layout;
- surveying or engineering services, for example services to check the structure of the building or specialist checks for asbestos;
- planning applications, for example the costs of getting essential planning permissions to alter a listed building; and
- statutory fees and statutory permissions, for example the costs of building regulation fees, or getting listed building consent.
Example: Qualifying expenditure
Bob purchases a dilapidated gallery, and spends £400,000 having it surveyed and checked, redesigned and converted into a modern office space.
Providing the building is a ‘qualifying building’ (see below), Bob should be able to claim BPRA on this qualifying expenditure.
Qualifying buildings
A building is qualifying for these purposes if it is commercial (i.e. not residential), and (following the conversion/renovation) will be used for commercial letting, a trade, profession, vocation or offices. Buildings which have previously been used as dwellings cannot qualify. The building must have been unused for at least one year.
There are exclusions where the person holding the interest in the building carries on a ‘relevant trade’, and again no BPRA can be claimed if this is the case. The list of trades which are disqualifying is available via HMRC’s guidance on BPRA.
The building must also be located in a disadvantaged area – again, there is a handy link to a postcode checker on HMRC’s guidance page.
Accelerating expenditure
Whilst it is obviously not worth spending money simply to secure a tax deduction, businesses who are looking at expanding or moving premises should look at whether any costs would qualify for BPRA, and if so strongly consider the timing of their expenditure. Might it be more tax-efficient to spend money?
One problem is that with the end of the window looming so close it leaves little time for planning – and projects of this type should not be rushed; however, there is a way to buy a little more time to actually come up with the money.
Practical Tip:
Expenditure for capital allowances purposes is ‘incurred’ once the obligation to pay becomes unconditional – so you could enter a contract on 31 March, but not pay over the amount until later on and still qualify – provided the period of credit is no longer than four months.
