Key Takeaways:
- The Structures and Buildings Allowance (SBA) is a tax relief initiative in the UK that allows businesses to claim tax deductions on qualifying costs for structures and buildings used for qualifying activities.
- The SBA applies to structures and buildings where construction contracts were signed on or after October 29, 2018.
- Eligible activities include trades, professions, property businesses, managing investments, and land-based trades.
- Qualifying costs for the SBA include construction costs, renovation and repair costs, fitting out works, and more.
- The applicable rates for the SBA are 2% for contracts signed before April 1, 2020, and 3% for contracts signed on or after April 1, 2020.
- The allowance period for the SBA is 33 and one-third years from the start date, which is determined by the first non-residential use or the date of qualifying expenditure.
- Businesses can claim the SBA by including it in their tax returns and providing an allowance statement that includes relevant information about the structure and its costs.
- The SBA can be claimed for the entire allowance period, even if ownership or use of the structure changes.
- Selling or disposing of the structure will end the SBA claim, and the remaining allowances can be passed on to the new owner.
Introduction
The Structures and Buildings Allowance (SBA) is an essential tax relief measure in the UK that provides significant benefits to businesses. For startups and innovative companies, understanding the intricacies of the SBA can help maximize tax relief and provide a competitive advantage. This guide aims to provide a comprehensive overview of the SBA, including its eligibility criteria, claiming process, applicable rates, and more. By leveraging the information presented in this guide, UK startups can make informed decisions regarding the SBA and optimize their tax planning strategies.
- Overview of the Structures and Buildings Allowance
The Structures and Buildings Allowance is a tax relief initiative introduced by the UK government to incentivize investment in structures and buildings used for qualifying activities. This allowance enables businesses to claim tax deductions on qualifying costs associated with the construction, renovation, or purchase of eligible structures. By reducing tax liabilities, the SBA supports businesses in their growth and expansion efforts.
1.1 Eligibility for the Structures and Buildings Allowance
To qualify for the SBA, businesses must meet certain criteria. Firstly, the construction contracts for the structure must have been signed on or after October 29, 2018. Additionally, the structure must not have been used as a residence for the first time it was utilized or during the period the business is claiming for. The structure must also be used for a qualifying activity, which includes trades, professions, property businesses, managing investments, and land-based trades.
1.2 Qualifying Costs for the Structures and Buildings Allowance
The SBA allows businesses to claim tax relief on various qualifying costs associated with eligible structures. These costs include fees for design, site preparation, construction works, renovation and repair costs, fitting out works, and more. It is important to note that the SBA only applies to construction costs and not other expenses such as land, integral features, fixtures, planning permission, financing, and landscaping.
- Applicable Rates and Allowance Period
Understanding the applicable rates and allowance period is crucial for businesses planning to claim the SBA. The rates determine the percentage of qualifying costs that can be claimed each year, while the allowance period defines the duration for which the SBA can be claimed.
2.1 Applicable Rates for the Structures and Buildings Allowance
The applicable rates for the SBA depend on the type of tax: corporation tax or income tax. For corporation tax, the rate was 2% for contracts signed between October 29, 2018, and March 31, 2020. From April 1, 2020, onwards, the rate increased to 3%. Similarly, for income tax, the rate was 2% for contracts signed between October 29, 2018, and April 5, 2020. From April 6, 2020, onwards, the rate changed to 3%.
2.2 Allowance Period for the Structures and Buildings Allowance
The allowance period represents the duration for which a business is entitled to claim the SBA. The allowance period starts from the later of two dates: the date the building is first used for a non-residential purpose or the date the qualifying expenditure is incurred. The allowance period is fixed at 33 and one-third years, providing businesses with an extended period to claim tax relief.
- Claiming the Structures and Buildings Allowance
To benefit from the SBA, businesses need to follow the appropriate claiming process. This section outlines the necessary steps and requirements for claiming the SBA.
3.1 Creating an Allowance Statement
Before making a claim, businesses must create an allowance statement for the structure. The allowance statement should include essential information such as the structure’s address, description, date of the earliest construction contract, total qualifying costs, and the date of first non-residential use. If the structure is purchased from a previous owner, a copy of the allowance statement must be obtained.
3.2 Claiming the SBA on Tax Returns
Businesses should include the SBA in their tax returns to make a formal claim. The relevant information from the allowance statement must be accurately entered into the tax return to ensure compliance. It is crucial to keep records of the earliest construction contracts and any additional construction costs for future reference.
3.3 Continuing the SBA Claim
Once a business starts claiming the SBA, it can continue to do so for the entire allowance period, provided the structure is used for qualifying activities. Even if the ownership of the structure changes hands, the new owner can benefit from the remaining allowances. However, if the structure is sold, demolished, or used for non-qualifying activities, the SBA claim will come to an end.
- Optimizing Tax Planning with the Structures and Buildings Allowance
The SBA offers significant opportunities for startups to optimize their tax planning strategies and reduce tax liabilities. By understanding the nuances of the SBA, businesses can leverage its benefits to their advantage.
4.1 Integration with Other Tax Allowances
It is important to note that the SBA cannot be claimed on costs that already qualify for plant and machinery allowances. However, businesses can take advantage of other available tax allowances in conjunction with the SBA to maximize overall tax relief.
4.2 Collaboration with Accountants and Tax Professionals
Given the complexity of tax regulations, it is advisable for startups to work closely with experienced accountants and tax professionals. These professionals can provide valuable guidance and ensure compliance with all relevant tax laws while optimizing the benefits of the SBA.
Conclusion
The Structures and Buildings Allowance provides a valuable opportunity for UK startups to claim tax relief on qualifying costs associated with structures and buildings used for qualifying activities. By leveraging the benefits of the SBA, startups can reduce tax liabilities, allocate more resources for growth and innovation, and strengthen their financial positions. By understanding the eligibility criteria, claiming process, applicable rates, and allowance period outlined in this guide, UK startups can navigate the complexities of the SBA and make informed decisions to optimize their tax planning strategies.
Table 1: Applicable Rates for the Structures and Buildings Allowance
| Tax Type | Rate (Before April 1, 2020) | Rate (On or After April 1, 2020) |
|---|---|---|
| Corporation Tax | 2% | 3% |
| Income Tax | 2% | 3% |
Table 2: Allowance Period for the Structures and Buildings Allowance
| Allowance Period Start Date | Duration |
|---|---|
| Date of First Non-Residential Use | 33 and one-third years from the start date |
| Date of Qualifying Expenditure |
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