A company acquires a five-storey office block with a net lettable floor area of 3,000m2 that was constructed in the early 1970’s. After purchasing the property, the company discovers that the suspended ceilings throughout the office areas contain asbestos. Moreover, the material is noted to be in poor condition and requires urgent attention. The works are essential because harm is being caused and the expenditure would not have been required for any other reason.
The following expenditure is incurred in addressing this issue:
| Asbestos survey |
£5,000 |
| Remedial works |
£175,000 |
| Replacement ceilings |
£90,000 |
| Professional fees |
£30,000 |
| Total Qualifying expenditure |
£300,000 |
It is to be assumed that the company pays corporation tax at the 30% rate, the company elects to treat the capital expenditure as a revenue deduction and claims the further enhancement of 50% as shown below:
| Qualifying expenditure |
£300,000 |
| Enhancement by 50% |
£150,000 |
| Total relief |
£450,000 |
| |
|
It is important to note that this is not the actual cash saving, as the total relief is used against the taxable profit.
| Tax Payable without remediation claim |
|
| |
|
| Profits before tax after other deductions |
£1,000,000 |
| Tax on profits at 30% |
£300,000 |
| Profit after tax |
£700,000 |
| Tax payable with remediation claim |
|
| |
|
Profits before tax after other deductions
|
£1,000,000 |
| Less land remediation relief |
£450,000 |
| Taxable profit after LRR |
£550,000 |
| Tax on profits at 30% |
£165,000 |
| Profit after tax |
£385,000 |
| Tax (cash) saved |
£135,000 |
