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Industry hits out at Budget plans to scrap allowances

30 March 2007 by
Industry hits out at Budget plans to scrap allowances

Industry figures have reacted angrily to the chancellor's plans to phase out Industrial Buildings Allowance (IBA), warning the move could be "devastating" to the hospitality sector.

IBA - a 4% tax relief claimable annually for a 25-year period - will be discontinued over the next four years, Gordon Brown announced in the Budget. He will also phase out the current capital allowances within two years, in favour of an annual investment allowance on expenditure up to £50,000.

Bob Cotton, chief executive of the British Hospitality Association, warned that the changes would cost the industry millions of pounds in additional tax, discourage investment and even make some investments unviable.

"Brown's decision to scrap the IBA will probably inflict greater damage on those who want to invest in the industry than the bed tax," he said.

Capital allowances, Cotton added, were an efficient way of encouraging new-build properties, at a time of increasing pressure to build new hotels, restaurants, add rooms and upgrade facilities.

Marios Gregori, director of corporation tax at accountancy PKF, said the changes had come out of the blue and the additional costs would inevitably be passed on to customers. Hotels that had been recently acquired, he added, would be hardest hit.

"Owners who planned on the basis of receiving tax relief over 25 years will now have to review their figures because they'll only be able to claim for the next four," Gregori said. "In a sector where long-term financial planning is particularly important, these changes could be devastating."

David Woodward, head of capital allowances at KPMG, said: "Many businesses, especially those in the more capital intensive sectors and those with large property portfolios, are potentially going to be worse off."

Travelodge's finance director, Jon Mortimore, said the move was another demonstration of the Government not understanding tourism. "With the Olympics in sight, Brown has effectively raised the cost of operating a new hotel by 5%," he said. "How can the Department for Culture Media and Sport call on our industry to open thousands more hotel rooms in preparation for 2012, while the Treasury forces up costs of building?"

by Emily Manson

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