Natasha Spicer is a senior manager at accountancy firm, Menzies.
The Government’s decision to subsidise the development of 1,500 hectares of brownfield land for the creation of 160,000 new homes means the time is right for developers to consider getting involved in such projects. In addition to applying for grant funding, developers should also consider optimising profits by making the most of land remediation relief, which is based on 150 per cent of qualifying expenditure.
With the aim of regenerating local areas and helping more people onto the property ladder, the Government has announced plans to invest £1.8bn in the development of brownfield sites. This will be a combination of locally led grant funding, distributed to local authorities and a proportion earmarked for transport links, community facilities and underused land, such as brownfield sites. As many brownfield sites are likely to be contaminated, developers may be able to reduce their taxable profits on such projects by claiming land remediation relief.
Land remediation relief enables developers to claim relief from corporation tax at the rate of 150 per cent of their qualifying costs. Companies that are loss making can also surrender their losses to HMRC and receive a repayable tax credit at the rate of 16 per cent of their surrendered loss, in a similar way to the R&D tax relief regime.
Qualifying costs for land remediation relief include costs incurred when establishing the level of contamination at a site and costs incurred when removing or containing contamination, to reduce the possibility of harm to people or the environment. Companies can claim for the costs of employing staff or subcontractors during such projects, or the cost of materials purchased.
It’s important for developers to be aware that there are a number of scenarios when land remediation relief cannot be claimed. One such scenario is where the business has already received a government grant in order to decontaminate a brownfield site. However, if the developer has expenses over and above the value of the grant, they can claim for this amount.
In the event that it’s not clear how much of the grant funding relates to the costs of decontamination work, and how much to overall development work, HMRC states that the developer must allocate the costs in “a just and reasonable manner”. However, as this definition is open to interpretation, it’s important for the developer to keep accurate records and be able to clearly demonstrate how qualifying expenditure has been allocated.
When getting involved in land remediation projects, developers should consider the nature of the contamination and whether this will qualify for Land Remediation Relief according to HMRC’s definition. In order to qualify for land remediation relief, contamination must be causing harm to people or wildlife or have the potential to do so in the future. Alternatively, there must be a serious possibility of environmental pollution.
Developers must also consider how the contamination occurred at the site. To make a claim for land remediation relief, the affected land must have been contaminated due to industrial activity. For example, the presence of asbestos would count as contamination but the presence of air or water, or living or decaying matter, such as living organisms, would not. There are some exceptions to this rule, such as the presence of Japanese knotweed, or naturally occurring arsenic or radon. Developers must also make sure that they were not the cause of contaminants in the first place and if the purchase price of the land was reduced as a result of contamination, the amount of land remediation relief that can be claimed may also be limited.
As well as seeking expert advice at an early stage of remediation projects, it’s essential that developers keep detailed records of all costs incurred at every stage of the work. They must also ensure any costs related to employing subcontractors are as detailed as possible. Taking these steps will optimise their chances of making a successful claim for land remediation relief.
The Government’s investment in the development of brownfield sites represents a significant opportunity for developers but it’s important that they make the most of the tax relief available. By developing a clear understanding of when they can claim for land remediation relief and by seeking the right expert support, they can maximise tax savings when cleaning up contaminated land.
