Eligible expenditure

The governing test is connection: expenditure is eligible where it has a direct link with the eligible works. The link must be demonstrated rather than merely asserted.

The link must be demonstrated by the documentation, which is why the structure of the bill of quantities and the addressing of invoices are not matters of form. The structure of the bill of quantities is therefore part of the proof.

A consequence worth spelling out follows: expenditure may be technically necessary to the works and still not be eligible, if the regime of the deduction claimed does not cover it or if a provision excludes it. Technical necessity does not imply tax eligibility.

Eligibility does not concern building operations alone, and the scope is wider than practice assumes. It also covers professional services and the connected charges.

It covers, within the scope each regime identifies, the professional services connected with the works and the charges necessary to deliver them. The scope should be checked against the deduction claimed.

Professional services typically comprise design, works supervision, safety coordination, final inspection and the other technical activities the project requires. The services should be shown separately in the bill of quantities.

Charges typically comprise the cost of building applications, administrative fees, conformity reports and other connected administrative expenditure. These charges should also be shown identifiably.

For a practice this has direct commercial significance: its own services fall within the eligible base, and this should be communicated to the client because it affects the effective cost of the service. The point should be made at the quotation stage.

Expenditure with no connection to the eligible works falls outside the benefit, as does expenditure a specific provision excludes. The two categories of exclusion rest on different reasons.

The first category covers purchases and services the client incurs during the works but that do not form part of them, and operations carried out on parts of the property or on units other than those covered by the works. The distinction is drawn by unit and by the part of the property concerned.

The second category comprises exclusions introduced by specific provisions, the principal of which concerns building services. The building services exclusion is the most significant in practice.

Category of expenditure	Eligibility
Building operations of the eligible works	Eligible
Connected professional services	Eligible, to be shown under items of their own
Charges for building applications and fees	Eligible, to be shown under items of their own
Operations on units other than the one being worked on	Excluded
Replacement with a single fossil fuel boiler	Excluded, subject to the transitional provision

This is the technical exclusion bearing most on building services design and to be checked before the bill of quantities is prepared. It concerns boilers fuelled by fossil fuels.

Works replacing winter heating systems with single boilers fuelled by fossil fuels are not eligible, including condensing boilers and condensing warm air generators. The exclusion also covers condensing technologies.

Lower impact solutions remain eligible: heat pumps, hybrid systems, biomass generators and micro cogeneration units. The technical conditions of each solution must be checked separately.

A transitional provision preserves eligibility for expenditure incurred by the date the rules identify on works now excluded, even where completed later. The relevant date is when the expenditure was incurred.

The operational consequence is that a boiler replacement designed without this check may turn out to be wholly ineligible, and the client discovers it at tax return stage. The check precedes the preparation of the bill of quantities.

This is where the tax subject meets the construction economist's craft. The structure of the bill becomes an element of proof.

The bill of quantities for eligible works has a function beyond the ordinary one: it must allow the eligible base to be identified and, where several deductions apply, separated by deduction. The separation should be set up while the bill is being prepared.

Three points follow.

Items must be separated by eligibility from the moment the bill is prepared. Reconstructing afterwards which operations are eligible from a bill not designed for that purpose costs more than preparing it correctly.

Where several deductions apply, the separation must be taken down to the level of the deduction rather than stopping at generic eligibility. It is the condition for demonstrating combination.

Professional services and charges must be shown identifiably rather than aggregated into overheads, because their eligibility is demonstrated by their being identifiable. An aggregated item makes eligibility impossible to demonstrate.

One final observation on the commercial value of this approach. Two quotations may differ in gross amount and coincide in net benefit, or the reverse, depending on how items are split between eligible and ineligible. A bill prepared with that care is therefore part of the proposal rather than a technical formality.

Where an attestation that expenditure is reasonable is required, the structure of the bill takes on further significance. The items must be traceable to documented price references.

The attestation is defended on whether the items can be traced to documented price references. A bill built from items referring to price books or to documented analyses supports the attestation; a lump sum bill leaves it without support.

The two requirements, separation by eligibility and traceability to references, are built together in the same document rather than at two different moments. Building them separately means preparing the bill twice.

Applying the rate to the total cost of the works is the first, and produces a systematic overstatement. The base must be filtered item by item before the rate is applied.

Aggregating professional services into overheads is the second, and makes their eligibility impossible to demonstrate. The services should be shown under items of their own.

Designing a system replacement without checking the exclusion is the third. The check belongs before the financial plan is set.

Postponing the separation of items to the tax return stage is the fourth, and transfers to the client work that cost little when the bill was prepared. Reconstructing afterwards costs more than preparing correctly.