We provided a brief overview of the SBA in our newsletter on 15 November 2018, as this new allowance was first announced in the Budget on 28 October 2019. HMRC has now produced some basic guidance on the SBA.
The SBA provides a 2% flat rate allowance for the cost of constructing non-residential buildings which are used for trading or business purposes, including managing investments and commercial property businesses. Residential properties include any building located in the grounds of a residence such as a home office built in the garden. Also properties used for furnished holiday lettings or residential letting don’t qualify for the SBA.
Construction costs include; building, renovation, repairs, fitting out, site preparation and design. Buying a newly constructed building can qualify for the SBA. However, the SBA can only be claimed on the lower of the construction costs and what the business paid for the building.
You may have incurred costs which qualify for the SBA in an accounting period which ended since October 2018, in which case they need to make a claim in their tax return.
To make this claim the business needs to have an “allowance statement” for the building. The first business that uses the building creates the allowance statement and passes it on to the next user when the building is sold. An allowance statement is also needed for any new extensions or renovations completed for existing structures.
The HMRC guidance on the SBA doesn’t include much detail about the allowance statement. Ideally before you submit a claim for SBA you should read more the detailed guidance in the HMRC capital allowances manual, but that hasn’t been published yet.
If you need to submit an SBA claim as part of a corporation tax return for the year to 31 December 2018 we will be happy to help you.
Written by the Tax Advice Network