Capital allowances and GP Practices: Unlocking tax relief - An insight from Albert Goodman LLP
In the ever-evolving landscape of Primary Care, GPs face increasing financial pressures with rising operational costs. This is coupled with demand for modernisation, to work at scale and to bring care into the community, often without space to do so.
Guest article written by Albert Goodman Chartered Accountants
More GP Practices are looking to maximise the use of their premises, but trying to do so cost effectively. Capital allowances can offer a valuable opportunity to do this.
What are capital allowances?
Capital allowances are a form of tax relief that allow businesses to deduct the cost of qualifying capital expenditure from their taxable profits.
When investing in surgery extensions, refurbishments, new builds or acquisitions, tax relief can be claimed on expenditure such as heating and air conditioning systems, electrical, lighting and plumbing systems, solar panels and energy saving equipment, as well as medical equipment and fixtures and fittings.
There are a number of different capital allowance schemes. Some give tax relief on the full cost in the year of purchase, others spread the relief over time:
- Annual Investment Allowance (AIA) – claim 100% of the cost of qualifying expenditure up to £1 million against taxable profits in the year of purchase.
- Writing Down Allowances (WDA) – when AIA is exceeded, or not available, the WDA provides relief over time at either 18% or 6% depending on the asset purchased.
- Structural and Buildings Allowance (SBA) – if constructing or renovating surgery buildings, or converting a non-residential building, claim a 3% deduction per year.
- Full Expensing – Limited companies can claim a 100% first year deduction against profits on qualifying expenditure.
How much could you save?
If a capital allowance review on a £500,000 refurbishment identified £250,000 in expenditure qualifying for AIA, for GP partners paying tax at 40%, this could result in a £100,000 tax saving.
If GP Partners spent £250,000 on a surgery refurbishment qualifying for SBA, 3% capital allowances could be claimed annually saving £7,500 each year. Over the 33.3 year life of the allowance and assuming a 40% tax rate, this could save £100,000 in tax.
How do capital allowances work with NHS Grant funding?
GP Practices can receive grants for premises developments and improvements from the NHS under the Premises Cost Directions 2024. However, the Directions state that grant funding cannot be given on any cost elements on which tax allowances have being claimed.
Whilst grant funding can mean little or no upfront costs and no borrowing costs for the GP Practice, the funding does comes with abatements to notional rent, guaranteed minimum use periods and the possibility of a legal charge over the property.
If you have strong taxable profits, want to retain full notional rent, want flexibility on how the premises is used or sold in the future and are able to borrow at a manageable rate, then capital allowances could offer an alternative to grant funding to make a project viable.
Can you claim retrospectively?
Yes. If you purchased a surgery building or undertook refurbishments, for example added new consulting rooms, the tax legislation allows for retrospective claims. The assets must still be owned with no previous claim having been made against the qualifying expenditure.
There can be significant benefits to making a retrospective claim. You could receive a tax refund for the overpaid tax in previous years which can boost the GP Practice finances. Also, any unclaimed allowances can be carried forward to reduce future tax liabilities.
How to maximise your claim?
- engage with a specialist before undertaking a project to plan an approach to maximise your capital allowances and consider the options compared to NHS Grant funding.
- review past projects for any missing claims to allow for potential tax refunds.
- keep records of the work completed to support claims.
Conclusion
By reducing costs and improving cash flow, capital allowances can be a powerful tool for GP Practices to invest and maximise the use of their premises cost effectively.
With a government focus on shifting from hospital care into the community, but with seemingly sparse resource to do so, capital allowances could make investment worthwhile.
For more information, please contact Sarah Edwards at Albert Goodman by email at Sarah.edwards@albertgoodman.co.uk