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.