How long did you work for HMRC and what was your role?
I worked for HMRC for 27 years, leaving in 2015. As a direct tax specialist working in compliance, I dealt with Income and Corporation Tax Issues. During this time, I led compliance teams at various stages. Plus, I spent some time as an authorising officer for penalties and formal information notices. I also spent two years working for the HMRC Head Office with the responsibility of liaising with local compliance in respect of capital allowances issues.
In your experience, what were the challenges with capital allowance claims?
The biggest issue was a lack of detailed understanding. Specifically, as to how the capital allowance regime works in practice. This ‘knowledge gap’ applied pretty much universally, as many HMRC caseworkers and practitioners have a poor understanding of the area. In my view, this is down to capital allowances being a specialist area. Capital allowances are actually taught as a module in tax training, which is often not revisited once passed. This lack of knowledge can be a dangerous thing.
How has the legislation changed in the years you have been a specialist?
In terms of older changes, the requirement for certain property transactions to quantify the value of assets, qualifying for capital allowance at the time of the property sale, was a big change. Though Structures and Buildings Allowance relieving previously excluded expenditure on buildings, in certain circumstances, represented quite a big change in policy. Even if it’s not overly generous in practice.
However, I would say that how legislation is to be interpreted, is often a bigger issue. In the capital allowances area, HMRC has a longstanding tendency to adopt the most restrictive legislative interpretation possible. It is not uncommon to find them actually adding requirements not present in the legislation when seeking to disallow a claim.
It should be remembered that the HMRC view of a particular area and their published guidance, is often informative. Although, it is just that, as it does not have the force of law as this ultimately sits with the Tribunal. I have taken and won two capital allowances cases at Tribunal where HMRC adopted an overly restrictive view.
What do accountants need to be aware of when processing these claims?
Accountants need to understand the legislation, particularly as regards how the legislative exclusions operate. It’s important to apply legislation before case law as no amount of caselaw will overcome a legislative restriction and remember that it’s a two-step process. The asset must firstly qualify for an allowance in principle and then it needs to pass the ‘plant test’. Put very simply, it needs to perform a function within the business rather than being the setting or premises within which the trade takes place.
What words of advice would you give to those reluctant to investigate a claim?
Capital allowances are there to relieve capital expenditure incurred in earning the profits of a trade. HMRC is perfectly happy to tax, and if unclaimed will put your client at a commercial disadvantage.
Thank you Mark for enlightening us!
Now we have been behind the scenes with a former HMRC inspector, it has really highlighted the importance of a true understanding of what capital allowances are and a good knowledge on the latest legislation.
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