Capital allowances are akin to a tax deductible expense and are available in respect of qualifying capital expenditure incurred on the provision of certain assets in use for the purposes of a trade or rental business. They effectively allow a taxpayer to write off the cost of an asset over a period of time.
Ken Hardy and Damien Flanagan of our Capital Allowances team explain.
Benefits of claiming
- Claim an immediate tax / cash benefit
- Reduce or completely shelter a tax liability
- No restriction on high earners claiming wear and tear allowances and most industrial buildings allowances
- Improve cash flow and keep cash in your business!
- Possible cash refund / repayment of taxes
- Not a “specified relief”.
Who can claim?
- If you built or bought a property or incurred capital expenditure on plant and machinery that is in use for the purpose of a trade or rental business, you can probably claim.
- KPMG’s Tax Depreciation Group will carry out an initial assessment of your capital expenditure – at no cost – to determine if there is an opportunity for us to add value.
Tax depreciation/capital allowances claims
We have extensive experience of preparing the following claims:
- Wear and tear allowances claims for qualifying plant and machinery (“P&M”) – claimed at 12.5% over 8 years n Plant and machinery analysis for R&D tax credit claims
- Industrial buildings allowances claims – typically claimed at 4% over 25 years n Energy efficient capital allowances claims – 100% claim in year 1
- Look back claims – potential repayment of tax
- Negotiating claims with Revenue.
Examples of claims/property types:
The purchase of new or secondhand properties.
The fit-out / repair / refurbishment / extension of properties including the following:
- Offices
- Factory and manufacturing plants
- Pharmaceutical plants
- Data Centers
- Leasehold improvements
- Mixed use developments
- Nursing homes/primary care centers/Hospitals
- Commercial properties (retail, shopping centers, hotels, restaurants, banks)
- Rental properties - apartments and houses.
- Landlord works
- Tenant works
Common errors
Your entitlement to claim has not been established properly; this is a complex tax technical area
- Insufficient supporting documentation in place to justify your claim
- Over-claim: Incorrect inclusion and / or treatment of certain types of expenditure
- Under-claim: exclusion of qualifying expenditure – cash burn!
Implications of incorrect claim
- Under-claiming: You may not have claimed the full amount of allowances / tax savings that you are entitled to
- Over-claiming: If your claim is audited by Revenue, you may be leaving yourself open to repayment of the underpaid taxes relating to over-claimed allowances, in addition to interest, penalties and, in extreme cases, publication on the list of tax defaulters.
Frequently asked questions
Making a claim – our methodology
Our team will undertake the following actions to prepare your claim:
- We will determine whether an entitlement to claim exists. This may involve a review of a purchase contract or development agreement and supporting documentation and lease agreement, as necessary.
- We will liaise with the project design team, estate agents or clients’ finance team to obtain the necessary cost information and finance information required.
- Where there is no cost information available, our inhouse quantity surveyors will prepare an estimate of the likely apportionment of expenditure incurred.
- We will carry out a site visit, if required.
- We will carry out a detailed analysis of the total capital expenditure incurred to identify the maximum amount of qualifying expenditure.
- We will prepare a detailed, stand alone report to support the claim.
- We will negotiate the claim with Revenue, where required.
Our claims are prepared in line with Revenue practice, precedents and the principles established from case law and we would be confident, as a result of our extensive Revenue experience, that the positions adopted in our analysis would stand up to Revenue scrutiny.
Our credentials
Due to the volume of claims we have prepared, our clients can be confident that our experience allows us to identify fully maximised and compliant capital allowances / tax depreciation claims. Our team has extensive practical experience in the following areas:
- Offices and commercial buildings
- Retail, hotels, restaurants and leisure
- Infrastructure, manufacturing and process plants
- Private finance initiatives
- Purchase appointment – new or second hand property.
Since our foundation, we have built a bespoke claim methodology that has been tried and tested under a significant number of Revenue audits. Our credentials and experience of negotiating and delivering claims are second to none.
Wear and tear allowances claims for plant and machinery
Client: A private hospital group.
Project: A major expansion project.
Claim: We identified c. €19m of qualifying expenditure.
Benefit: The client received a tax benefit of c. €2.5m.
Client: An Irish clothing retailer.
Project: Store upgrades / fit-outs.
Claim: We assisted the client with a claim of c. €18m.
Benefit: The client received a tax benefit of c. €2.2m.
Client: An Irish logistics service providers.
Project: Depot refurbishments and upgrades.
Claim: We identified c. €6m of qualifying expenditure.
Benefit: The client received a tax benefit of c. €800k.
Client: A landlord
Project: Office fit-out / refurbishment including a new extensions.
Claim: We assisted the client with a claim of c. €1.8m.
Benefit: The client received a tax benefit of c. €460k.
Industrial buildings allowances (IBAs) claims for qualifying construction
Client: An Irish manufacturing company.
Project: A new production plant.
Claim: We assisted the client with claims for wear and tear allowances of c. €6m and IBAs of c. €4.5m.
Benefit: The client received a total tax benefit of c. €1.3m.
Client: A US multinational in the medical devices industry.
Project: An existing production facility and extension.
Claim: We assisted the client with a successful reclassification of IBAs to plant and machinery.
Benefit: The client will receive a time value saving of €1m, and a refund of c. €500k from Revenue.
Why contact KPMG’s Tax
Depreciation Group?
Contact Ken Hardy or Damien Flanagan of our Capital Allowances team if you think you may be in a position to benefit from tax depreciation/capital allowances.