Tax Efficiency and Care Homes: A Guide to Capital Allowances
The centre piece of the Autumn Statement was on full expensing policy. Initially introduced on a temporary basis in the Spring Budget of 2023, the policy was made permanent in the Autumn Statement.
Full Expensing allows companies subject to UK corporation tax to secure a 100% allowance when purchasing qualifying plant and machinery which is new and unused. It is a tax saving measure for many companies because the entire expenditure on the plant and machinery can be fully deducted from the company's corporation tax bill. Notably, there is no upper limit on the cost of the eligible plant or machinery - so the more a company invests in equipment, the more it can deduct from its corporation tax liability.
For items which do not qualify for a 100% allowance, a 50% first-year allowance is available for expenditure on new special rate (including long life) assets, some of which are listed below.
However, businesses should beware that the Treasury will recoup the saving if the company disposes of the asset. For instance, if a company purchases a new item of machinery and deducts 100% of the cost from its corporation tax bill, and subsequently sells the asset for £20,000, it is obliged to incorporate £20,000 back into its taxable profits.
In our experience, full expensing, and other available capital allowance claims for care homes are frequently underestimated. This leads to businesses missing out on significant tax savings.
In this piece we consider how full expensing, and 50% first year capital allowance, can be used in the care home setting and the types of qualifying plant and machinery which could be eligible under the scheme.
Unfortunately, there is no list of what counts as qualifying plant and machinery and therefore it can be a time consuming exercise to identify which expenditure is eligible under the capital allowances regime. We know that many specialist items can be qualifying items but there are also ordinary items of expenditures which are not unique to care homes but are often overlooked, including:
- Fixtures such as bathroom suites or kitchens;
- Lifts;
- Water and heating systems;
- Hot and cold water systems;
- Air conditioning units;
- Lighting systems;
- Electrical systems; and
- Fire alarm and CCTV systems.
Within a care home settings there is specialist health and care equipment which also qualify, including:
- Patient lifts and hoists;
- Rehabilitation equipment;
- Specialised beds and mattresses;
- Safety equipment;
- Medical gas systems; and
- Alterations within buildings to install equipment.
These examples represent a range of specialist equipment that plays a crucial role in the care and well-being of residents in a care home setting.
There are several benefits to making sure your business makes a valid claim under the full expensing scheme or indeed other types of capital allowance scheme. Firstly there is an immediate ability to deduct your expenditure on the qualifying item from your corporation tax bill, contributing to overall tax efficiency. Additionally, ensuring that you properly account for your expenditure in your accounts is an important part of having a compliant tax return which stands up to scrutiny by the tax authorities.