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Requests for assistance in Capital Allowance cases are usually made by the Inspector direct to the DV. Cases will be either for a not negotiated or a negotiated apportionment of a purchase price between the elements of the property which qualify for Capital Allowances and those which do not.
The apportionments that are required for the various Capital Allowances are described in Part 1 and the approach to be adopted by the DV to arrive at a 'just apportionment' are described in Part 3 of this Section. To arrive at a 'just apportionment' the DV will need advice on the estimated replacement cost of the building and, in Plant and Machinery Allowance cases, a separate figure for the estimated replacement cost of the qualifying plant and machinery.
The DV will request the assistance of the RBS in accordance with the procedures set out in this Section. Occasionally requests for advice may also be made direct to the RBS by CEO.
Requests for advice on the replacement cost of buildings or plant and machinery will be made on Form VO 1040 (Appendix 3). The form should be completed and forwarded to the RBS by the DV within 7 days of receipt of the case from the Inspector.
Occasionally the RBS may in addition be asked to:
- Provide an estimate of the remaining useful life of the building.
- Assist the Inspector in deciding what qualifies as 'plant and machinery' for Plant and Machinery Allowances.
Where additional advice under 1 or 2 above is required this should be set out by the DV in Section 12 of the VO 1040 form or in a covering memorandum.
The DV will provide the RBS with the following information:
- The relevant date at which the estimated replacement cost is required.
- A brief description of the building including details of construction, number of storeys, central heating, air conditioning, standard of finish, car parking etc and any unique features (for example, rebuilt behind a listed facade, stone frontage, extravagant architectural features etc).
- The gross internal area of all floors measured from the internal face of the external walls. This will include toilets, corridors, lift shafts and stairways and may not necessarily accord with the area the DV has used for rating purposes. The DV will make every endeavour to provide the areas in this form but where, on the basis of existing records this is not possible, the DV will provide the best estimate available and advise the RBS accordingly.
- Copies of any available plans showing the layout, sections and elevations of the building which may be of assistance to the RBS.
- Any additional information such as the taxpayer's schedules of replacement costs which have been forwarded by the Inspector with the request for advice.
- Where known, the taxpayer's estimate of the replacement cost of the building and, in Plant and Machinery Allowance cases, the taxpayer's estimate of the replacement cost of qualifying plant and machinery. The DV should ensure that the figures entered on the VO 1040 form are the taxpayer's replacement cost figures and not the apportioned values on which allowances are being claimed.
- Details of any buildings or items of plant and machinery included in the claim which the Inspector has indicated as not qualifying for allowances.
- The date the case is due to be reported by the DV.
- Whether the Inspector has requested a not negotiated or an agreed apportionment.
On receipt of a request for advice the RBS should consider whether or not on the basis of the information available any cost estimates provided by the taxpayer are generally acceptable. In Plant and Machinery Allowance cases it will often be necessary to rely on any factual information regarding the items of plant and machinery supplied by the taxpayer and consider whether or not the plant and machinery cost represents a reasonable percentage of the total replacement cost of the building.
After considering the matter the RBS should then either:-
1) advise the DV that the taxpayer's replacement costs may be accepted or
2) if the taxpayers costs cannot be accepted (or if no replacement cost figures have been suggested by the taxpayer) the RBS should advise the DV of the approximate total replacement cost of the buildings (including any plant and machinery) and, in Plant and Machinery Allowance cases, the approximate replacement cost of the qualifying items of plant and machinery.
If further information is required that only the taxpayer can provide the RBS should advise the DV, setting out exactly what is needed.
If the Inspector has requested an agreed apportionment the DV should seek the information from the taxpayer (or agent). If the Inspector has requested a not negotiated apportionment the DV should inform the Inspector and ask that the case be treated as a request for an agreed apportionment. If the Inspector agrees, the DV should then request the information required by the RBS from the taxpayer. If the Inspector does not wish the DV to treat the case as a request for an agreed apportionment then the Inspector should be asked to obtain the information and the case cancelled. If, however, the Inspector requires a figure urgently the RBS should be asked to make a best estimate of the costs and notify the DV of any assumptions made.
In not negotiated cases an external inspection may be made if necessary but on no account should the RBS carry out a full inspection or contact the taxpayer, agent or occupier. In cases where an agreed apportionment has been requested then a full inspection may be made if necessary. The RBS should liaise with the DV to ensure that joint inspections are made whenever practicable.
No information as to the reason for the costing exercise should be given to any person other than the taxpayer or an 'interested person' (see Part 4, paras 3.52 - 3.54).
The estimated replacement cost of a building or items of plant and machinery should take account of the following:
1) The RBS should estimate what it would have cost to erect the building if work had commenced at the appropriate time so as to have the building available for occupation at the valuation date.
2) The replacement cost should include site works but not any reclamation works which permanently enhance the value of the bare land (for example, the removal of underground obstructions or treatment of contamination).
3) If, due to the use of modern materials and building techniques, the cost of erecting a modern substitute building (of the same gross internal area) would be less than the cost of erecting an identical replacement building then the lower cost of the modern substitute should be adopted.
4) An addition should be made to the estimated building contract price for professional fees.
5) An addition for finance charges should be made by the DV. The RBS should however advise the DV of the estimated length of the building contract for this purpose.
6) No deduction from replacement costs should be made for any Regional Development Grants that may be available. If it is known that a grant was actually received the RBS should make it clear in his report that the grant has been ignored in the costing.
It is the Inspector's responsibility to decide whether any buildings or items of plant and machinery qualify for allowances. The RBS may however assist the Inspector in reaching a decision on any building or item if requested.
If in any case the RBS considers that the Inspector has accepted a building or item of plant and machinery which clearly does not qualify for allowances then the DV should be advised so that the matter can be clarified with the Inspector. It should, however, be remembered that in any Plant and Machinery Allowance claim there may be a number of items which are open to debate as to whether or not they qualify for allowances. In such circumstances the Inspector may well reach a compromise with the taxpayer and accept some items but reject others. The RBS should therefore only seek clarification in respect of any accepted items which clearly do not qualify for allowances.
For advice on which buildings and items of plant and machinery qualify for allowances reference should be made to Part 1 of this Section.
The time limits within which the DV is required to report to the Inspector are 42 days for not negotiated cases and 6 months for cases where negotiations are required. To enable the DV to meet these time limits the RBS should endeavour to report costings to the DV within 4 weeks of receipt of the VO 1040 form (or within 4 weeks of receipt of any further information requested by the RBS).
Before reporting an apportionment defendable on appeal the DV will ask the RBS to confirm that the cost estimates and any estimates of the remaining useful life of the building are defendable on appeal. If the RBS is satisfied that any estimates are fair and reasonable and supported by the best evidence available the DV should be advised accordingly.