Capital allowances - a tax break available for businesses that invest in equipment and their commercial property - will be familiar to many entrepreneurs up and down the country. However, very few appreciate the full extent of the tax relief they are entitled to.
Research published by HM Revenue & Customs (HMRC) earlier this year demonstrated that less than a third of small and medium-sized enterprises understood the correct process for claiming relief for straightforward items such as computers or furniture for the office under the capital allowances rules.
Hotels and restaurants in particular could benefit hugely from capital allowances but are among the business sectors under-claiming the relief.
In the majority of cases, providing you have made a profit in the previous two tax years, a hotel or guesthouse will receive a lump sum of any tax rebate they are due from claiming the capital allowances. This can allow you to invest back into the business and suddenly a range of improvements - from guest room decoration, or renovation of communal areas and bars, to new booking systems and higher marketing budgets - are within your reach.
So why do allowances so often go unclaimed and how do you ensure you are not missing out on valuable tax relief?
Capital allowances generally arise from capital expenditure on purchasing or building commercial property, refurbishments and extensions to a property, or investment in plant and machinery. It is in relation to "plant and machinery fixtures" installed within their commercial property that businesses routinely miss out on tax relief as most simply do not appreciate the breadth of what could be claimed on.
In general, plant refers to "apparatus used for carrying on a business" and a huge range of items from air-conditioning equipment and generators to alarms and lighting systems can fall into this category. Case law demonstrates that even items such as paintings or sculptures displayed in communal areas and forming part of the ambience drawing customers in can be considered as plant when used for business purposes.
In one case we recently handled at Portal Tax Claims, a business running a hotel which was purchased for £748,800 was able to demonstrate £301,667 in capital allowances that were then used to make a claim against their taxable profits. Typically, capital allowances of about 30% or more of the purchase price of your hotel or restaurant property can be realised - a welcome helping hand from that unlikely benefactor HMRC.
Russell Cotton, Portal Tax Claims
Five tips for managing your capital allowances claim
1 Don't forget about improvements If you are upgrading your kitchen equipment to provide better service during the busy holiday period, or in preparation for a major influx of tourists for a particular event, remember that the cost of upgrades can be offset against profits over the period.
2 Services as well as goods can count as qualifying expenditure Invoices from electricians, architects and other professionals relating to refurbishment work or construction of a new building should also be considered when filing a claim.
3 Raise capital allowances if you are buying a new building Capital allowances are often overlooked in the heat of property purchasing negotiations. Even if a commercial property you are about to buy has already had allowances claimed against its fixtures and fittings, the issue is worth raising - you may be able to negotiate the price down.
4 Act sooner rather than later If you wish to take advantage of the allowances, you should act fast. Although you can still make a claim after the capital expenditure on plant or machinery has been incurred (providing you still own the assets), under new legislation you must pool the expenditure and make an application before you sell or make a statement of what value the fixtures have.
5 Seek specialist advice Many business owners would simply rely on their accountant to deal with any tax relief claims but capital allowances are plagued by grey areas of case law and legislation and need specialist involvement.