Capital Allowances

Revenue can audit a capital allowances claim for up to four years after the claim has been submitted. It is therefore important to ensure your claim is fully compliant and that there is sufficient evidence and documentation available to support your claim.

KPMG’s Tax Depreciation Group endeavours to prepare all claims on the basis that they should be expected to withstand a rigorous Revenue audit. Our team has vast experience supporting clients through Revenue audits and can provide guidance on the information required to support your claim.

See here for a list of common errors.

• 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. 

A capital allowances audit is an examination of compliance with the relevant capital allowances legislation and consists of a thorough review of the claim from a construction, financial and tax technical perspective.

Claimants must ensure that they maintain records to back up their claim. KPMG can help ensure that you are best placed to support your claim in the event of an audit and that you have the necessary documentation in place.

As a matter of course, we advise our clients that it is most likely a case of “when” not “if” your claim will be audited by Revenue.

KPMG can advise you on your capital allowances claim and on the best way to be prepared for an audit.

The best way to prepare for a Revenue audit is to make sure that your claim has been compiled in accordance with the appropriate legislation, e-briefs, tax briefings and best practice.

It is critical that you review whether the claim is likely to meet Revenue’s requirements under audit and consider whether appropriate action should be taken. In this regard, it is advisable to seek professional advice. 

Due to the volume of claims we have prepared, our clients can be confident that our experience enables us to identify the appropriate expenditure and entitlement and prepare fair and compliant capital allowances claims. 

Client An Irish clothing retailer.

Project Store upgrades / fit-outs.

Claim We assisted the client with a claim of c. €600k.

Benefit The client received a tax benefit of c. €330k.

Client A landlord

Project Office fit-out / refurbishment including a new extensions.

Claim We assisted the client with a claim of c. €700k.

Benefit The client received a tax benefit of c. €380k

Client An Irish logistics service provider.

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 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.

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 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.  

Contrary to common misconceptions, claiming capital allowances is not a straightforward process. Entitlement must be established and qualifying expenditure must be properly identified. The following are some of the most common errors and issues taxpayers should be aware of.

This is a significant risk issue as it could reduce the quantum of the claim or negate it entirely. For example, taxpayers must be satisfied that they have the burden of wear and tear. Taxpayers should also pay particular attention to assets included as part of third-party agreements or finance lease agreements, as these will impact entitlement.

In the event of an audit, Revenue is likely to focus on documentation from the outset. For example, where a claim is being made on a refurbishment project, tender documents and Main Contractor Reports are typically required; invoices tend to offer insufficient evidence as they do not typically provide any description of the work undertaken.

Not all capital expenditure qualifies for capital allowances. For example, taxpayers should not include 100% of expenditure categorised as “Leasehold Improvements” in trial balances or financial statements as qualifying. There is no direct correlation between accounting classification of assets and their treatment for capital allowances purposes.

The taxpayer has under-claimed, resulting from the exclusion of qualifying expenditure.

Issues often arise when there is a period of testing and commissioning being carried out or where a property has only been partly brought into use.

• Contrary to common misconceptions, there is no approved list of assets that qualify for capital allowances. There is no legislative definition of the term “plant and machinery” or “factory”, so the identification of qualifying items is not straightforward. The meaning of P&M for tax purposes is very broad and in practice covers a vast range of items extending far beyond moveable items and fixtures and fittings. For example, “plant” often exists in the fabric of a building. Whether something is considered P&M and thereby qualifies is determined by reference to principles established in case law and Revenue practice. 
• Capital allowances cannot be claimed in respect of grants or contributions. These need to be properly identified and treated appropriately. 
• The amount identified as qualifying expenditure must be “incurred” and that expenditure should be identifiable in the financial statements in the relevant chargeable period. In building, refurbishment and fit-out projects that span over a number of years issues can arise where there are retention payments held.

KPMG’s capital allowances group has successfully prepared, negotiated and settled capital allowances claims for all types of property investments for a wide cross-section of clients. Our extensive experience has enabled us to develop a tried and tested methodology for preparing fair and complaint claims.

As a result of our extensive Revenue experience, we would be confident that the positions adopted in our analyses would stand up to Revenue scrutiny.

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 other supporting documentation such as the lease agreement, as necessary

We will liaise with the project design team, estate agents or clients' finance team to obtain the necessary construction cost information and finance information required.

Where there is no cost information available, our in-house quantity surveyors will prepare an estimate of the likely apportionment of expenditure incurred.

We will carry out a site visit, as necessary.

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, standalone report to support the claim.

We will negotiate the claim with Revenue, where required.

Generally speaking, owner-occupiers, investors, landlords and lessees can claim where they’ve incurred capital expenditure for the purposes of a trade on any of the following:

• The purchase of property – new or second-hand 
• Construction of a new building 
• Owner-occupier fit-out / refurbishment projects 
• Landlord or lessee fit-out / refurbishment projects 
• Ongoing fixed asset addition claims. 

If you built or bought a property or incurred capital expenditure on plant and machinery that is in use for the purpose of trade or rental business, you can probably claim.

No, there is no approved list. This is a common misconception.

With regards to qualifying expenditure for Wear and Tear Allowances, there is no legislative definition of the term, “plant and machinery”, so the identification of qualifying items is not straightforward.

Plant and machinery (‘P&M’) must be identified on a first principles basis. Whether an item qualifies must be determined by reference to the facts, the nature of the trade, and the function of the item in the trade. A number of conditions/tests must be satisfied.

No, all capital expenditure does not qualify for capital allowances.

A taxpayer must satisfy the relevant criteria in the legislation in order to be eligible to make a claim. We will establish that the taxpayer has an entitlement to claim and once this is confirmed, we will prepare a fair and compliant capital allowances claim.

Generally yes, where the property is let. It is, however, critical to establish entitlement, especially in a landlord/lessee situation.

Yes, when they put the property or P&M in use for the purposes of a trade or rental business.

Depending on the facts and circumstances, you may be able to go back four years to amend your tax return to include the allowances that you should have claimed.

We can assist by way of generating a breakdown of the expenditure once there is evidence to prove that the expenditure was in fact incurred.

Depending on facts and circumstances, unused wear and tear allowances and industrial buildings allowances can be carried forward indefinitely and used to shelter future liabilities, i.e. they will not be lost.

Depending on the specific circumstances of each case, different time limits and restrictions can apply when claiming capital allowances.

Please contact us to discuss your particular circumstances and the appropriate timing for making a claim. We can also determine whether you are in a position to make a look back claim for previous accounting periods. This is offered at no cost or commitment from you.

• Under-claiming: You may not have claimed the full amount of allowances / tax savings to which you are entitled 
• 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.