Sector Focus : Hospitality
Background
The hospitality sector has received little support from the Treasury or H M Revenue and Customs in recent years particularly with respect to taxation relief for capital investment. The removal of Hotel Buildings Allowances; the introduction of the integral features regime and the reduction in writing down allowances have significantly reduced the value of annual taxation relief.
Although all businesses with capital investment requirements will have been affected by these changes, the measures will hit the hotel sector particularly hard as regular capital investment in hotels, restaurants, bars etc represent huge sums of money for the owners and operators.
Whilst the legislation may be stacking up against the sector, there are many ways in which the taxpayer can utilise the remaining reliefs and allowances in their favour:
1. Tax Efficient Design
Our knowledge and expertise allow us to advise clients when building, fitting-out or refurbishing properties to ensure the expenditure is incurred in the most tax efficient manner. This will include advice on how and when the expenditure is undertaken and classified, but in particular will relate to the steps which can be taken to maximise available taxation reliefs and particularly, capital allowances for investment in plant and machinery.
In addition to ‘normal’ plant and machinery allowances, an enhanced 100% first-year allowance (referred to as Enhanced Capital Allowances) is available to taxpayers who incur expenditure on energy or water efficient items of plant or machinery. The scheme also provides tax credits to companies with losses arising directly from such expenditure.
2. Utilisation of Recent Cases and Guidance
Although the tax legislation, guidance and manuals run through many thousand pages, H M Revenue and Customs and taxpayers (or their advisors) cannot always agree on the correct interpretation.
HMRC and The Treasury conduct consultations and focus groups to obtain views on future legislation and we are often involved with these processes to actively protect the interests of our clients.
Furthermore, if agreement cannot be reached with respect to current legislation, HMRC and the taxpayer may visit the Tax Tribunals (or even Court) to decide the outcome. Capitus can advise clients how to ensure the system works in their favour and how to apply such judgements in the most advantageous manner.
3. Maximisation of Other Tax Relief for Expenditure on Property
Land Remediation Relief (LRR)
When sites are being refurbished there may be considerable expenditure on the removal of asbestos or other contaminating substances. This may qualify for Land Remediation Relief (LRR), which is given as a 150% deduction for qualifying expenditure.
Premises in Disadvantaged Areas
A 100% first-year allowance is available for bringing disused commercial premises back into use in specifically designated areas. The building must have been unoccupied for at least a year and be in a so-called “Disadvantaged Area”.
So for example a vacant office, retail unit or former hotel which is converted into new premises, could potentially qualify for the relief.
Revenue Expenditure
Often expenditure incurred on repairs and renewals may be misclassified in the financial statements and tax computations. These errors often directly impact the final tax liability for a period and are not easily rectifiable in the future without restating accounts and tax returns.
It is therefore important to ensure capital (and revenue) expenditure on properties are appropriately analysed as incurred.
4. Tax Efficient Contributions to Operators and Tenants
There are several methods by which a property owner may incentivise a tenant to take up a new lease, but not every method is tax efficient and if agreements are not properly drafted, could leave both landlord and tenant with an unusually high liability to taxation. It is therefore important that expert advice is taken if incentives are being paid or received.
Summary
With the capital allowances rules changing many times over the past decade, it is imperative that owners, investors and operators take the appropriate actions to secure their cash-flows and alleviate the impact of changes.
Even if the enhanced forms of relief are not available, an analysis by a specialist can yield significant levels of additional capital allowances.
Capitus recommends that all those within the hospitality sector act pro-actively to ensure tax relief is maximised and captured expediently.
For more information, please contact Aubrey Calderwood.
