Tax chiefs issue warning over capital allowance claims

Businesses have been warned that HM Revenue & Customs will challenge attempts to claim capital allowances beyond their scope after a multi-million pound claim made by one of the UK’s largest clothing retailers was rejected for the second time by a tax tribunal.

Next Distribution Limited, part of the Next Group Plc, claimed the Industrial Buildings Allowance (IBA) on £19 million it spent on constructing two buildings used for warehousing and other activities.

Under the now-defunct IBA, businesses could write off some of their construction costs if the sites being built were used to carry out a process on goods or to store goods on their arrival in the UK.

HM Revenue & Customs (HMRC) refused Next’s claim for the allowance on the grounds that unpacking bulk deliveries and repackaging them in smaller packages was beyond the scope of the allowance.

The company’s appeal against the decision was dismissed by a First-tier Tribunal and that HMRC announced on 28 May that the decision had been upheld by the Upper Tribunal. This decision safeguards about £2.8 million of revenue.

Jim Harra, director general, business tax at HMRC, said: “HMRC’s decision to reject Next’s claim for this tax relief has now been backed by two tribunals.

“This case shows that, when any business – large or small – tries to claim capital allowances beyond their intended scope, HMRC will challenge it, including through the courts if necessary.”

Link: Guidance on capital allowances for buildings and renovation