I have several large invoice amounts for works carried out at my client’s property, I know some of the work carried out qualifies for Capital Allowances, but not all of it – What should I do?
There are many different micro scenarios that could apply within this question, but we will deal with one where the client will have appointed a main contractor to carry out the works and all payments for all trades will go through them. If this is the case it is usually a significant investment.
First of all find out what the invoices are based on. Was there an original quotation or tender that was accepted prior to the works commencing? If this is the case, you want to obtain a copy of this. Then look at the level of detail provided within the tender / quotation. This varies massively depending on how the project was procured. Best case, there will be a fully priced bill of quantities, worst case a lump sum offer for carrying out the works.
The next thing to ask for is a copy of the final account – this will detail any changes requested throughout the project and provide any price changes associated with them.
If you have a bill of quantities and a copy of the final account, you are in a great position to identify all of the items qualifying for CAs and their cost. The key is to ensure the items are categorised correctly depending on which pool they qualify under, making sure to check for Enhanced Capital Allowances (ECA). Even with the detail provided in a bill of quantities there is likely to be some items within the bill that fall within both the special rate pool and main pool. This can be where it gets tricky as where do you put the items, entirely in the special rate pool to play safe, or the main pool to take a risk, or try to get it as accurate as possible? The latter is the approach we take. In these scenarios we will create a price using first principles, by that we mean looking at the labour cost to install the relevant item, then the cost of any plant required to install the item, then the actual material cost to produce a just and reasonable cost. This can then be included in the relevant pool.
The same principle applies to the lump sums included in the invoices, if the qualifying items are there but no breakdown is available then this method can produce a just and reasonable cost for all items.
If there is a bill of quantities or just simple lump sum quotation, a survey of the property will be required to identify all of the qualifying equipment and for the qualifying equipment to be pooled correctly.
So, in summary:
1. Request a breakdown of the cost or request a copy of the quotation.
2. If tendered, request a copy of the tender return or pricing document in the contract.
3. Request a copy of the final account for the works.
4. If no detail – use first principles to reach a just and reasonable price.
If you are aware a client is going to be carrying out extensive works to their property, our suggestion would be to ask them to obtain detailed quotations / tender returns which specifically identify items of work to be carried out. Not only will this help them manage the costs of the works when the inevitable changes are made through the build process, it is really useful for pricing qualifying items for CAs. They should also be made aware of ECAs and bear these in mind whilst specifying the project.
This article is for information purposes only and does not constitute advice. For further information please feel free to contact us.
This article was written by Iain Stamp MRICS from Elect Capital Allowances Limited, electca.co.uk 01889 740 405
Regulated by RICS