Explaining ‘The elephant in the room’

Let’s explore this frequent misconception

When a UK taxpayer purchases an item of qualifying plant and machinery that is eligible for capital allowances, they will receive an invoice for passing onto their accountant. An accountant can recognise this purchase as a qualifying item, through the proof of expenditure (the invoice). They will then deal with this using the routine accounting system, and claim for the capital allowances.

Important point: There needs to be a clear and detailed invoice that provides proof of expenditure. Which the accounting system can act on, and does.

This is the basis of an accountant’s genuine belief that any capital allowances have been dealt with because they have dealt with some of them. However, it’s important to understand, that this isn’t all of the capital allowances.

When buying a commercial property, there is rarely a detailed list of the embedded items of plant and machinery. There could be an inventory of furnishing, chattels, equipment, etc. But this will not include details of radiators, toilets, emergency lighting, smoke detectors, or telephone points within the property.

If a building is re-developed, extended, or re-furnished, the work is often completed by a contractor, over a period of time. Payments are often made as Stage Payments and relevant documentation rarely include sufficient, if any detail.

In both scenarios, qualifying items will not be highlighted. Therefore, capital allowances are lost, due to the lack of detail.