VALUABLE TAX RELIEF TO SUPPORT CARE HOME GROWTH & OPERATIONAL EFFICIENCY
As the care home sector in the UK continues to grow and evolve, so too do the opportunities for care home operators to maximise their financial returns through the strategic use of capital allowances.
Understanding how to leverage capital allowances can provide significant tax savings and cash flow benefits for care home businesses, particularly when scaling up operations or carrying out extension works to existing facilities.
What are Capital Allowances?
Capital allowances are a valuable form of tax relief available to businesses in the UK, allowing them to deduct qualifying capital expenditure on certain types of assets - such as buildings, plant and machinery in the form of allowances from their taxable profits. By claiming capital allowances, care home operators can reduce their tax liabilities and improve their bottom line, providing them with the financial resources needed to reinvest in their businesses and drive growth.
What are Capital Allowances Considerations for Scaling up a Care Home Business?
1.**Starting with the financial projections:**
When embarking on a scale-up or expansion project, investors and business owners will typically create financial forecasts to access funding. By considering the post-tax position, and including capital allowances, a clearer picture of post-tax cash flow will be visible. Enhancing the yield and adding to the compelling case for funding.
2. **When should capital allowances be considered**
Carefully review your capital expenditure incurred during the scale-up or extension process to identify items that qualify for capital allowances. This can include project costs relating to the acquisition of existing care homes, construction, refurbishment and extensions. When acquiring (or disposing) of care home properties, conducting a thorough review of capital allowances can uncover valuable tax-saving opportunities. Engaging with a specialist advisor can ensure that allowances are properly identified, transferred, or apportioned in line with transactional requirements. Care homeowners should ensure that advice is sought on the relevant actions to be taken to value and secure the available capital allowances at precontract stage as there is significant legislation in place that may cause allowances to be lost if the correct provisions are not made.
3. **Identify Eligible Expenditures:**
Forms of eligible plant and machinery include not only fittings and fixtures but importantly certain integral features of the building, for example general power & lighting and heating systems. In the case of new buildings constructed, Structures & Buildings allowances are also available. Identifying the cost of each qualifying asset (including associated costs) and allocating them to the correct pool can be complex and should include a full audit trail to the Fixed Asset Register and relevant contracts. Key allowances available are Integral Special Rate Plant & Machinery at 6% per annum on a reducing balance basis, Main Pool Plant & Machinery at 18% on reducing balance basis and Structures & Buildings Allowances at 3% straight line basis (after 2018).
4. **Consider First Year Allowances :**
Enhanced deductions that can accelerate the flow of allowances are available if claims are made in the accounting period in which the expenditure is incurred and can make a huge impact to post tax forecasts and maximise the tax savings: Main pool super deduction 130% - for contracts entered in to on or after 3rd March 2021 and expenditure incurred between 1st April 2021 and 31st March 2023. Following this date “Full expensing” i.e. 100% allowance, is available. Special rate pool first year allowance 50% - for contracts entered in to on or after 3rd March 2021 and expenditure incurred between 1st April 2021 and 31st March 2023 – extended to 31st March 2026. Both provisions are for new fixtures only. When planning your expansion or refurbishment, explore opportunities to accelerate the tax relief - prompt action is required.
5. **Claim Annual Investment Allowance (AIA):**
The Annual Investment Allowance allows businesses to claim 100% tax relief on qualifying capital expenditures, up to £1m. Carefully timing your capital expenditure to make the most of the AIA can result in significant tax savings for your care home business.
In conclusion, capital allowances represent a powerful tool for care home operators looking to optimise their tax position and enhance their financial outcomes. By incorporating these top considerations into your scaleup strategy, you can unlock valuable tax savings, improve cash flow, and position your business for long term success in the competitive care home sector.
Rachel Sanders – Director at Jex Capital Allowances Limited
If you have any questions around capital allowances and how to claim this valuable tax relief please do not hesitate to contact Rachel Sanders or Jonathan Jex of Jex Capital Allowances
