Commercial Property Development Tax Allowances Urged In UK

by Robin Pilgrim, LawAndTax-News.com, London

02 April 2009

PKF, a UK-based firm of accountants, business advisors and consultants, has called on the country's government to introduce new tax allowances which would boost commercial property developments.

According to the firm, last year’s overhaul of the UK’s capital allowance regime took effect from April 2008 – before the recession and lack of financing really took hold in the property sector.

James Welch, property taxes partner at PKF explained:

“While the new annual investment allowance is helping smaller businesses, cutting other allowances to pay for it did little to encourage developers and large businesses to invest in new factories or business premises.”

For those businesses that can invest, the allowances on commercial buildings are now less generous, and Mr Welch believes that this is not a time to be removing incentives to invest, stating:

“With the Industrial buildings allowance being phased out, the property sector needs new tax reliefs to help boost commercial developments."

“We already have special allowances for energy-efficient plant and machinery, so why not introduce similar allowances for energy-efficient expenditure on the rest of the building? This would encourage energy-efficient refurbishments and back up the Government’s pronouncements about carbon dioxide targets and creating jobs in the green economy,” he added.

The capital allowances rules dictate how capital costs can be set against a business’s trading income and over what period. Although there are some allowances that enable businesses to write off the cost of capital items against revenue immediately, if a business is already trading at a loss, the capital allowance simply increases the loss for tax purposes.

This can lead to tax refunds where losses can be carried back, but in many situations will simply result in a larger loss rolling forward.

Welch continued:

“In the Budget on April 22, 2009, the Chancellor should change certain capital allowances to work in a similar way to the Research and Development tax credit. Making all capital allowances on energy-efficient expenditure into repayable tax credits for loss making businesses, would really help cashflow and encourage more business owners to take the plunge and invest in their business."

“This need not be a permanent measure, but if it was put in place for, say, the next five years, it would give much needed certainty over the real cost of business investment," he concluded.

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