If you’re cleaning up contaminated land don’t lose out on valuable Tax Relief Claims
If you have to bear the costs of cleaning up contaminated commercial or residential land as part of your project, look again to see if you are still in time to claim extra tax relief on the costs from HMRC. You might not be too late after all.
The usual time limit to claim extra relief from HMRC on contaminated land remediation costs is two years from the end of the accounts year end in which the money was spent. However, if you are a builder and the land forms part of your stock to sell, there can be a much longer time limit. Where the costs form part of your “work in progress” for the property in your accounts, normal accounting treatment is that the cost isn’t relieved until the property is sold. The two year clock runs from that accounting period, not the period of spend. For example:
- Dougal Ltd bought a site in December 2016 which contained Japanese knotweed and hydrocarbon contamination. It received neither a grant nor a price reduction specifically for the contamination.
- It spent £100,000 on clean up costs in March 2017, during its 30 June 2017 accounting year. The costs were included in the Work in Progress carrying figure of the property cost in the accounts.
- In December 2019 Dougal’s new MD, Florence, discovers this and assumes that the time limit for a Land Remediation Relief claim had expired on 30 June 2019, based on when the money was spent.
- However, Florence took another look at the circumstances and found that many of the properties built on the site weren’t sold until the following accounting periods ended 31 July 2018 and 2019.
- This means that Florence has until 31 July 2020 to get a Land Remediation Relief claim for its 2018 year end, and at the same time she mops up the rest of the relief by amending the company’s 2019 return too.
- Florence gets an additional £9,500 tax back for Dougal Ltd across the two years.
Land Remediation Relief only applies to companies. There is an extra 9.5% tax to be saved where a property is held as stock, or 28.5% if you hold the land as an investment asset. If the extra deduction creates a loss that you can’t set against profits, then it can be surrendered to HMRC for a lower value, but still worthwhile 24% refund. With trade down right now, that’s useful cash back for Dougal Ltd.
As well as the clean up costs, in some cases extra costs relating to the construction of the building that may be required to reduce the risk of future contamination reoccurring can qualify too.
If you have spent any money on cleaning up land in the last few years, contact our team today to see if you could claim.
Our tax team has just been made finalists for the third year running in the national Tolley’s Tax Awards as an outstanding tax team.