If you have recently bought a freehold office, fitted out a leasehold space, or refurbished your agency's premises, you might be sitting on a tax relief you have not claimed. Integral features capital allowances let you deduct the cost of certain building systems from your taxable profits. For a growing agency, that can mean thousands of pounds back from HMRC.
This guide explains what integral features are, how the relief works, and what you need to do to claim it correctly.
What Are Integral Features?
Integral features are specific systems built into a commercial building. HMRC defines them under the Capital Allowances Act. They are treated as plant and machinery for tax purposes, even though they are fixed to the building itself [1].
The full list of integral features includes:
- Lifts, escalators and moving walkways
- Space and water heating systems
- Air-conditioning and air cooling systems
- Hot and cold water systems (but not toilet and kitchen facilities)
- Electrical systems, including lighting systems
- External solar shading [1]
An electrical system takes its ordinary meaning: a system for taking electrical power from the point of entry to the building and distributing it through the building as required [2]. The same logic applies to cold water systems [2].
If your agency office has ducting that supports multiple systems, the cost should be apportioned on a fair and reasonable basis. You can claim capital allowances on each portion at the rate appropriate to that system [2].
What Does Not Qualify?
You cannot claim plant and machinery allowances on land structures like bridges, roads, or docks. Buildings themselves are also excluded, including doors, gates, shutters, and mains water and gas systems [1].
Permanent features such as floors, walls, and ceilings are not integral features either [3]. If you are fitting out a new office, the partitioning and structural walls fall outside the relief.
Active façades are a grey area. The inner skin of an active façade may qualify as part of the air cooling or heating system. The external skin is treated as a window and is excluded [2].
How Much Relief Can You Claim?
Integral features qualify for capital allowances at a special rate. You can claim writing-down allowances at 6% per year on the cost of the asset [3].
For most plant and machinery, the standard rate is 18% per year. Integral features fall into the special rate pool because they are long-life assets [3].
However, in most cases you can deduct the full cost of items from your profits before tax using the Annual Investment Allowance (AIA) [1]. The AIA currently stands at £1 million per year. That means if you spend £50,000 on a new air conditioning system for your agency office, you can write off the full amount against your taxable profits in the same year.
If your total capital expenditure exceeds the AIA limit, the excess goes into the special rate pool and attracts the 6% writing-down allowance.
Structures and Buildings Allowance (SBA)
There is a separate relief called the Structures and Buildings Allowance (SBA). It applies to expenditure incurred on or after 29 October 2018 for constructing or purchasing non-residential buildings [4][5].
The SBA gives relief at 2% per year over 50 years [4]. It does not apply to assets that already qualify for plant and machinery allowances, including integral features [4]. So you claim SBA on the building shell and integral features capital allowances on the qualifying systems inside it.
Buying a Building from a Previous Owner
This is where many agency founders trip up. When you buy a building from a previous business owner, you can usually only claim for integral features and fixtures that they claimed for [1].
You must agree the value of the fixtures with the seller. If you do not, you cannot claim for them [1]. This is a strict rule. HMRC will not accept a retrospective estimate.
Your solicitor should include a capital allowances election in the sale and purchase agreement. Without it, you lose the right to claim. If you are in the process of buying a building, ask your accountant to review the draft contract before exchange.
Residential Property Exception
If you let residential property, you can only claim for items in a residential building if the building has multiple residential units, like a block of flats, or if the item is used in a communal part of the building [1].
For agency founders, this is rarely relevant unless you also own a residential portfolio. The integral features rules are designed for commercial premises, which is what your agency operates from.
How to Claim Integral Features Capital Allowances
You claim capital allowances in your company's corporation tax return. The relevant form is the CT600, and you include the capital allowances computation in the supplementary pages.
If you use accounting software like Xero or QuickBooks, your accountant will need to track the qualifying expenditure separately. It is not something the software calculates automatically.
You will need:
- A detailed breakdown of the costs incurred on each integral feature
- Invoices and contracts showing the amounts
- A capital allowances computation showing the AIA claimed and the balance carried forward to the special rate pool
If you are unsure whether a specific item qualifies, ask your accountant before filing. HMRC can challenge claims that are not properly supported.
Common Mistakes Agency Founders Make
Mistake one: assuming everything in a fit-out qualifies. Office furniture, carpets, and decorative lighting do not count as integral features. Only the systems listed above qualify.
Mistake two: forgetting to agree values with the seller. If you buy a leasehold office and the landlord has previously claimed capital allowances on the building systems, you need a written agreement on the value before you can claim.
Mistake three: mixing up SBA with integral features. The SBA covers the building structure. Integral features are separate and attract a different rate. Claim both where applicable, but keep the computations distinct.
When to Speak to Your Accountant
If you are planning a fit-out, refurbishment, or office purchase in the next 12 months, ask your accountant to model the capital allowances position before you commit. The timing of expenditure can affect how much AIA you can use in a given year.
If you have already completed a fit-out and did not claim integral features capital allowances, you can amend your corporation tax return within 12 months of the filing deadline. After that, you may need to make a separate claim outside the return.
At Agency Founder Finance, we work exclusively with agency founders. Our ICAEW qualified team can help you identify qualifying expenditure and prepare the capital allowances computation for your corporation tax return.
If you are buying or fitting out an office, contact us before you exchange contracts. A properly drafted capital allowances election can save you thousands.
Final Thoughts
Integral features capital allowances are a straightforward way to reduce your agency's tax bill. The rules are specific, but the relief is generous. With the AIA at £1 million, most agency fit-outs can be written off in full in the year of expenditure.
The key is to plan ahead, keep detailed records, and agree values with sellers at the point of purchase. If you do that, the relief is yours to claim.
For more on agency tax planning, read our tax and compliance articles or explore how we help marketing agencies and digital agencies manage their finances.
Sources
- gov.uk: Claim capital allowances: What you can claim on - GOV.UK
- hmrc.gov.uk: CA22330 - more detail - HMRC internal manual - GOV.UK - GOV.UK
- accaglobal.com: Maximising capital allowances relief - ACCA Global
- taxscape.deloitte.com: Capital allowances - new Structures and Buildings Allowance
- globaltaxnews.ey.com: United Kingdom: Highlights of Budget 2018 documents and other...