Adrian is a care home operator based in the Manchester area. Over a period of three years he was expanding his business by undertaking two newly built care homes adjacent to each other. This would bring his total operation to three care homes.
Why they approached us
Adrian had employed a renowned care home contractor to build the two care homes, the contractor was a client of ours who also owned and rented out care homes.
They were surprised to learn that the first care home Adrian took yielded capital allowances of just 30%, which was far lower than we had achieved for the contractor.
How we helped
We were introduced to Adrian and agreed we will review the capital allowances claim made by their accountant on the newly built £5m care home. In addition to this we also suggested a comprehensive review of their existing / older care home which they purchased 10 years prior for £2.5m.
Starting with the £2.5m care home which was purchased 10 years ago, we managed to ascertain in the sale & purchase agreement that the goodwill of the business was valued at £300,000 and furniture, fittings and equipment (FF&E) was valued at £200,000. The FF&E was valued at an open market value at the time of the purchase and came with a comprehensive list of the items. These included tables, chairs, beds, wardrobes and similar items which are easily removable. We explained to Adrian that our capital allowances valuation would be based on items which are generally fixed to the fabric of the property for example electrical installations, heating, air conditioning systems etc.
With regards to the new build, it was also apparent to us that the £1.5m currently identified seemed low when compared to £5m of expenditure and we therefore undertook a second review by analysis of the whole project costs. The contractor who had built similar care homes for himself had enjoyed capital allowances of around 48% of the costs incurred (excluding land and finance costs).
Having purchased the existing care home towards the end of 2008 we explained to Adrian that if no prior claim had been made, the basis of his valuation would be an apportionment of his purchase price assuming the building was brand new.
We undertook our due diligence enquiries and it transpired there was indeed no previous claim made. Therefore, using the reconciliation point of £2.0m paid for the land and buildings we were able to identify total allowances of £775,000.
In addition to this our review of the newly built care home identified total capital allowances of £2,350,000 which was an additional £850,000 over and above the figure identified by the accountant.
We explained to Adrian that both outcomes were possible because of our background as chartered surveyors which enabled us to better understand the construction process and thus the qualifying costs.
Capital allowances are based on a series of case law and legislation which make it an area often complex to understand. Some accountants are able to identify a significant amount of allowances on new expenditure however in many cases application of the legislation and knowledge of the case law (as well as a construction background) would help us ensure the tax relief is correctly maximised.
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