Steven Bone is the author of our highly respected Capital Allowances: Transactions and Planning product. As well as a unique transaction-based structure, this contains a series of valuable pro forma elections and case summaries.
Steven is a tax-qualified chartered surveyor at Gateley Capitus.
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I left school after completing my A Levels and worked for a year as a private practice quantity surveyor before going off to university to gain a surveying degree, afterwards working for another firm and qualifying as a chartered quantity surveyor.
After starting professional life as a quantity surveyor in the construction industry, I fell into the tax world - well actually - I was headhunted into a recently established specialist team in a Big 4 firm. I wasn’t 100% sure what it involved, but before I knew it, I had got the job and I have worked in the area ever since. But despite falling into the role, it turned out that I had an aptitude for it and enjoy it, so I have put a lot of effort into it. Initially, it was a case of completely retraining and sitting tax exams, plus I had to get to grips with the different terminology within the tax industry, which pushed me outside my comfort zone.
Fast forward to today and I am an industry veteran author and commentator and director at Gateley Capitus specialising in tax incentives primarily for property expenditure.
I’ve specialised in tax incentives since 1997. However, as I was a qualified surveyor before that, I am able to blend real estate and tax knowledge to advise clients on tax incentives for property purchases/sales and construction projects.
How has the area changed since 1997? That’s an interesting question. Honestly, it’s not changed dramatically in the sense that capital allowances have been around in their present form since 1945. So, a solid grounding in the rules and practice will always stand an adviser in good stead. But Chancellors do like to tinker with the rules in all sorts of ways. So different types of allowances, rates of relief, or interpretations may come and go, and you even see patterns emerging broadly every decade or so. It has also been fascinating to spend more than 25 years advising in an area and watching it evolve but realise that the Government does not always exhibit the same ‘memory’ because ministers and officials rotate into and out of roles, often in relatively short spells.
One thing that has definitely changed though is the use of IT because during the early years of my career, most aspects were paper-based and email was not used at all, which now takes up a lot of my time!
The Government has a growth agenda, so it wants to encourage businesses to spend money on things that are good for the economy and is enticing this activity through generous tax breaks. Allowances have recently become much more valuable because the main tax rate for companies increased by nearly a third – from 19% to 25%.
There has also recently been an uptick of HMRC scrutiny into capital allowances, perhaps because of a spill over from the well-publicised problems that have emerged in the R&D tax market and advisers from that space are now trying to advise on capital allowances.
Since it was introduced in 2008, the 100% annual investment allowance (AIA) for spend on plant and machinery has been something of a political football, with the qualifying expenditure threshold yo-yoing up and down according to political considerations of the day. The ceiling has even been as low as £25,000. So, the current £1,000,000 cap from January 2019 is welcome, as is the relative certainty of £1,000,000 being made ‘permanent’ (to the extent that anything in tax is truly permanent).
In 2021, the 130% super-deduction for main pool plant was introduced, which has now been replaced by 100% temporary full expensing (also described in the legislation as ‘expenditure on plant or machinery in other cases’). The super-deduction was the first time that the tax deduction arising from capital allowances has been higher than the spend. So, it was a really headline-grabbing move by the Government.
In 2018, a new type of capital allowance called structures and buildings allowances was introduced. For many years, the UK was out of kilter with all its competitor nations because there wasn’t really tax relief available for money spent on bricks and mortar (other than research and development allowances and now repealed incentives such as industrial buildings allowances), whereas in lots of other countries there was. Naturally, this was a bone of contention for businesses, so it was good to see this addressed to bring the UK more in line with its competitors. There’s always tinkering and changes to the rules, but to create such a widely available new capital allowance for previous ‘tax nothings’ was an important move.
Capital allowances are a relatively niche area, and so I think one of the major challenges is that it can be difficult to find good people. Genuine specialists often have a dual background in property and tax, as well as concentrated experience, and it’s that technical knowledge which sets them apart because they understand the industry inside and out.
Plus, tax is an unregulated market, so anybody can call themselves a tax or capital allowances adviser. All advisers differ in experience and expertise and there are plenty of authentic advisers who are doing their best to operate a complex set of rules in messy real-world circumstances. But there are also advisers with limited experience or who don’t adhere to the same professional standards and it can sometimes be quite difficult for clients to tell the difference at face value.
The R&D tax sector is especially facing problems at the minute and receiving a lot of negative press about issues including potential spurious claims, error and fraud. As a result, HMRC has applied substantially increased scrutiny to claims including hiring several hundred extra case workers to handle this work along with using a volume-driven formulaic approach. But the challenging way that HMRC has been approaching enquiries, seemingly isn’t working fairly and the Chartered Institute of Tax has written to HMRC to essentially complain about poor standards, training and this volume compliance approach. This increased scrutiny also seems to be spilling over into other tax reliefs, including capital allowances. But it does, however, highlight that it is more important than ever before for claims to be correct, complete and properly supported to avoid investigations and deal with them when they arise, and this is where genuine specialist advice comes into its own – it’s not just about saving tax.
The use of AI in tax work can be seen as both a challenge and an opportunity for everybody. I guess it’s the same as any industry – there is always a learning curve to go through in terms of figuring out how the technology can be fully used and applied once systems are accurate and reliable.
Calculating property tax relies on data collection and entry, as well as understanding real estate and tax terminology and capital allowances law to carry out a coding exercise to define tax characteristics. Often the data is messy and inconsistent and the appropriate treatment is not always obvious or clear cut so needs experience and professional judgement to be applied. Currently, this process is mostly done manually and, of course, AI has the potential to speed it up and reduce the cost. However, it’s a tough nut to crack and some of the technology is just not there yet to produce sufficiently reliable outputs efficiently. At the moment, I still firmly believe the only way to guarantee the best result and service for a client is for a skilled person to review the circumstances and provide the advice, and even where AI can be employed its output needs to be carefully reviewed by an experienced tax specialist.
