Issue 1

Issue 1

After a year’s exile in Cross Street we’re finally back home in the Square. It didn’t take long to settle back in and things are starting to take shape.

The St Ann’s Square Circular – let’s call it the Square Circular for short – is a round up of news, ideas and reminders on taxation and accounting issues. Although not exclusively about tax it will be predominantly so. After all, tax is an area which is continually changing and it is also an area that seems to attract everyone’s interest. Wonder why that is?

You won’t necessarily get the Square Circular monthly or quarterly. We will send you a Square Circular because we have something to say and not because we have to say something. We envisage this being every couple of months or so.

The Square Circular is something more than a reminder of tax payment dates and a recent news summary, important though they may be. We will want to focus from time to time on specific issues which can help you plan and control your tax affairs. But, we will try not to get bogged down in too much detail. We hope the Square Circular will give you some food for thought and will provide the starting points for future discussions.


Over the last few months, would you believe, we have been thinking about things other than tax, auditing and the like. Issues such as carpets, kitchen fittings, office partitions, the installation of electrical sockets for our computers, telephones and other equipment have dominated our conversation in the run up to our return to the Square. But even such a weighty matter as a move to new premises provides an opportunity for some tax expertise.

The problem is simple. Assuming you are a small or medium sized business, when you incur capital expenditure on plant and machinery bought for the purpose of your business you can claim capital allowances of 40% in the first year and thereafter year by year at 25% of the reducing balance. However, if you buy a new building or make improvements to your building it’s a different story. If your building qualifies as an “industrial building” you can claim an annual allowance of 4% of the cost. If it doesn’t come into that category e.g. a shop or an office you don’t get any allowance at all. Thus, it is all to the good if you can correctly categorise expenditure as “plant”.

What capital expenditure within the cost of a new building is categorised as plant for these purposes and is therefore eligible for capital allowances? The word “plant” is not defined by statute and in the absence of a definition it is hardly surprising that there have been numerous tax cases on this issue.

In basic and simple terms an item may be plant if it is part of the apparatus used by a businessman to carry on his business but not if it is part of the setting in which the business is carried on. Of course, it gets more complicated. For example, although a building may have certain basic fittings to be a building it is recognised that certain trades require an “ambience” specific to their activities and certain specialist equipment which is part of the fittings of a building may still be regarded as plant.

If you are involved in building improvements or know anyone in that position you should seek our advice as to what part of the work may be available for tax relief. You don’t have to wait until all the work is done before you consult us. We are quite happy to put on overalls and a hard hat and wander round the shell of a building with your builder and architect. We’ve done it before.

One more point. Sometimes a property may be purchased in a “ready to move in” condition. You may pay one single amount for the building but even so the building itself will contain some element of plant and machinery. It could be costly to assume that the whole of the cost of the building is not eligible for capital allowances. There are techniques to ascertain what plant and machinery is included within the building and to agree with the Inspector of Taxes what portion of the cost might be eligible for capital allowances on the basis that it comprises plant and machinery. If you find yourself in this position please do let us know.


The financial press has told us that over 2 million home owners with endowment mortgages have received letters telling them that their endowment might not be sufficient to repay the mortgage capital at the end of the term. The usual thing is to suggest that the homeowner increases his policy premiums or starts a second policy to make up the eventual shortfall.

Be careful. There is a tax trap here. If there is less than 10 years to go the second policy would not be a qualifying policy and there could be a tax liability on maturity. Likewise, the increase in premiums could affect the existing status of the “qualifying policy”.

If you are one of those unhappy 2 million plus endowment policy holders why not earmark an ISA to make up the shortfall.


A few weeks ago the Inland Revenue published a Technical Note for consultation purposes on the subject of corporation tax chargeable gains. The Technical Note was about giving a sort of rollover relief for gains on shareholdings held by companies in the same way as there can be a rollover relief for gains on disposals of business assets. The Government’s present thinking is that the relief would apply to shareholdings in excess of a threshold of 30% in trading companies or trading groups and that rollover would be possible into other substantial shareholdings or assets which presently qualify for business asset rollover relief.

Depending upon the results of the consultation process it seems likely that something on the subject will appear in next year’s Finance Act.

On the same day the Inland Revenue issued another Technical Note for consultation purposes regarding the reform of the taxation of intellectual property goodwill and other intangible assets. It looks as if there may be some changes in these areas next year as well.

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