Capital Allowances Claims Under Scrutiny by HMRC

The implementation of the accelerated 130% super deduction and the introduction of 100% full expensing capital allowances have generated significant interest from HMRC.

The surge in these tax incentives is expected to lead to a rise in HMRC enquiries into Capital Allowances claims. As a result, it has become crucial for businesses to meticulously prepare fully substantiated claims, supported by relevant case law and legislation.

Nudge letters

In recent months, HMRC has taken proactive steps by issuing "nudge letters" to companies who have made claims for the 130% super deduction and 50% special rate allowance. The purpose of these letters is to prompt companies to review their basis of claim for first-year allowances, with a particular focus on leasing restrictions and companies with accounting periods straddling 1 April 2021.

If you have received a nudge letter you should carefully assess your basis of claim to ensure compliance with the specific requirements outlined in the legislation. This includes scrutinising leasing arrangements and considering any potential limitations on claiming allowances.

Curbing tax avoidance: Limiting qualifying expenditure in finance leases

In an effort to combat tax avoidance, specific measures have been put in place to restrict the allowance of qualifying expenditure in finance leases. By targeting this particular area, authorities aim to prevent taxpayers from exploiting loopholes and artificially inflating their eligible expenses to reduce their tax liabilities. It is crucial for businesses involved in finance leasing arrangements to understand and adhere to these restrictions to avoid potential penalties and maintain compliance with tax regulations.

Documentation and evidence

In light of the anticipated rise in HMRC enquiries, it has become crucial for businesses to prepare their Capital Allowances claims meticulously. HMRC is likely to request detailed documentation and evidence to support the claims made. This includes:

• comprehensive information regarding the assets
• their costs
• the eligibility criteria for the relevant allowances.

Businesses should ensure that they have robust records and documentation in place to substantiate their claims, including supporting case law and relevant legislation.

Benefit of a Review

It is crucial to flag the risk that HMRC may discover a situation where a client has wrongly claimed a super deduction due to failing to bring a leased asset into use within the designated period. If this error is identified during a review, the client could have taken the opportunity to voluntarily amend the claim, thereby minimising or even avoiding penalty fines and interest charges. Proactive action to rectify such inaccuracies is essential in order to maintain compliance and mitigate potential financial repercussions.