Following the 2012 Finance Act, taxation specialist Portal Tax is advising anyone involved with the hospitality industry, whether owning premises or advising property owners, to be aware of forthcoming tax changes, especially as valuable tax benefits may not be available in the future, particularly if a property is likely to change hands.
The MD of Portal Tax, Shaun Murphy, urges business and individuals to examines possible tax benefits without delay: “While these changes apply to all commercial properties, in our experience as capital allowance tax specialists, properties in the hospitality sector often realise the highest tax benefits.
“Our latest analysis found that for most bar and nightclub owners, capital allowances can be identified on the fixtures and fittings up to the value of half a million pounds on average. A percentage of this can then be claimed back if a submission is successful and a rebate is due.
“Even for a small hotel valued at £500k, capital allowances can be identified to almost a third of its value; for larger hotels it works broadly on a pro-rata basis.
“The average amount of capital allowances that can be identified for pubs/restaurants can be comparatively low as many are owned by breweries or chains, who are often the ones that meet the costs for refurbishments and fit-outs. The figure is much higher for freehold premises.
“In our experience, most hospitality space owners and indeed their professional adviser, including accountants and solicitors, are simply not aware of the tax advantages of identifying capital allowances. This is where professionals, such as architects and interior designers, can help as they actually advise on, specify and cost a building’s fixtures and fittings.
“Even for a small hotel valued at £500k, capital allowances can be identified to almost a third of its value; for larger hotels it works broadly on a pro-rata basis”
“And it does not have to be glamorous properties. For example, one of our clients, Paul Dyke, an accountant from Southampton-based PD Accountancy Services and a fellow of ACCA, told us that he was initially sceptical on the value of capital allowances that could be identified on a simple sandwich shop business, but was delighted when he discovered that the value of £68k could be claimed back.
“Designers and architects are ideally placed to point out to their clients what can broadly be claimed ahead of engaging a specialist adviser. It’s not only the mundane items such as heating, lighting, washroom fittings that are claimable, but also the more specialised fittings such as bars, decor, signage and built-in kitchen appliances – essentially, the often overlooked fixtures and fittings within the fabric of every building that is taken for granted in the overall purchase price.”
According to Portal Tax, the top items by volume/value on which tax has been claimed back are ironmongery and sanitarian; power, data and lighting fittings; floor finishes; hot and cold water equipment; signage and wall finishes; fire, communication and security systems; and heating, cooling and ventilation systems.
“It is also worth noting,” adds Shaun, “that some premises will have been refurbished many times, and all of that work can also be considered if a previous claim hasn’t been made. New-builds tend to go through more quickly, as one might imagine, but can still realise very high percentage allowances due to the technology costs involved.
“But, we would advise anyone considering the implications of this to act swiftly as recent regulatory changes mean that any seller or purchaser now needs to take account of the Finance Act 2012 new fixtures legislation – ‘The effect of changes in ownership of a fixture’.
“Under the new rules you are obliged to deal with capital allowances during a property transaction. Also the fixed value requirement – or the disposal value statement requirement – and what is termed a ‘pooling’ requirement both must be satisfied.
Shaun concludes: “Right now we are in a transitional period within the legislation. Property that is purchased – and not resold within this period – between April 2012 – 1st April for corporation tax and 6th April for income tax – and April 2014 are not subject to all of the new provisions, but all property sold after this is included, so our advice is to consider the rule changes now.