Babar Khan, director of surveying at CPA Tax, talks about reducing tax bills for dentists who own their own building.
What is the bottom line?
Dentists owning their practice building can potentially save significant amounts of income and corporation tax through capital allowances.
The tax saving comes in the form of a rebate (cash from HMRC) or a future reduction on tax payable.
Some of the rules on capital allowances are very complex – even for trained professionals – meaning the vast majority of dental practice owners are simply missing out on this key tax saving.
Surgery owners are able to claim tax relief on any expenditure incurred on the purchase or refurbishment of their building.
What are capital allowances?
Capital allowances are a form of HMRC-approved depreciation provided for tax payers under the Capital Allowances Act, 2001. This legislation enables dentists who own their own practice building to claim tax relief on inherent ‘plant & machinery’ (P&M) within their property – these mainly include items that form part of the fabric of the building.
The type of items that could be claimed on within a surgery include air conditioning, surgery equipment, retractors, dental lasers and specialised lighting.
In some cases, capital allowances can deliver tax reliefs of up to 10% of the property purchase price. A property purchased for, say, £500,000 could result in a bottom line tax saving of over £50,000.
If you are in a profit making scenario, capital allowances can be offset against other income or profits possibly even across other companies in your group (if applicable). If you are not profitable, it is possible to defer the reliefs until they are required.
Why are so many dentists missing the opportunity to make this tax saving?
Most accountants only submit claims for expenditure on the most obvious, lower value items such as computer equipment, carpets and furnishings. However, when a building is purchased, there are no receipts passed on for ‘integral features’ – items such as water piping, electrical wiring and ventilation systems.
Sophisticated commercial property investors make annual capital allowances claims whenever they purchase or refurbish a property. However, we have found that surgery owners, who are often dentists by trade, have less time to familiarise themselves with the allowances available to them, resulting in them paying more tax than they are supposed to.
Surely my accountant has made this tax claim already?
It is impossible for even the most efficient accountant to put a value on qualifying items that form part of the fabric of the building – this is an exercise in building surveying, not accounting.
Many dental practice owners assume a full capital allowances claim has already been undertaken by their accountant but without a property tax survey being undertaken, it is impossible that a full claim has been made and the available tax saving maximised.
What are the statutory time restrictions?
For property bought or built before April 2014, there are no time restrictions on eligible claims. However, from April 2014, new rules were introduced that imposed a tax year time limit where allowances have previously been claimed.
In effect, there is a two-year window starting from the end of the accounting period in which the building was purchased or refurbishment was undertaken for you to claim your tax relief.
How long does the tax claim process take?
A claim will normally take four weeks to complete and requires minimal input from you. Once the building has been surveyed and the report submitted to HMRC, a rebate is typically issued within four to six weeks.
What is the catch?
It is important to ensure that your claim is fully compliant and there is sufficient documentation available to support your submission. Claiming this relief requires a variety of expertise including legal, tax, accounting and valuation.
CPA Tax work on a ‘success-only’ basis, with our fee only payable from the tax you save and only after you have realised a benefit.
For more information on CPA Tax, visit their website.
