TAX IMPLICATIONS

INFORMATION FROM CATAX AND 123 GRANTS

Capital Allowances: A Much-Needed Cash-Injection for B&B Owners

2020 will always be known as the year of staycations, with many families avoiding holidays abroad in favor of staying in the UK. Although the Bed & Breakfast industry in some areas of the country has enjoyed a market boost, others have faced significant cash flow challenges due to the ever-changing COVID-19 restrictions. Here, Clare Mckee from specialist tax relief firm, Catax, explains how a cash-injection in the form of capital allowances can be a lifeline for many businesses, and what to consider if you’re looking to buy a B&B property.

What are capital allowances?

“Capital allowances are a type of tax relief that offsets the hidden expenditure in commercial property, including B&Bs. This comprises elements such as air conditioning, heating and lighting – essentially everything that would remain in the building if you tipped it upside down! It can be claimed by anyone that owns their commercial building and is a UK taxpayer. However, if you let out a residential building, it must qualify as a furnished holiday lettings business to be eligible - it has to be available for holiday letting for at least 210 days of the year and let out for 105 days or more. Contrary to misconceptions, claiming for capital allowances will not impact the value of the property or capital gains tax.”

Do capital allowances have to be claimed on recent property purchases, or can it be processed for older sales too?

“Capital allowances can be claimed at any time, as long as you still own the building. We routinely process applications for expenditure that incurred 10 years ago or even longer! However, we would highly encourage owners to make a claim when they purchase the property or at the earliest opportunity, in order to benefit from the tax relief available. Should the building be sold at a later date then the balance of the claim can be retained or passed to the new owner. In addition to purchases, capital allowances can also be applied for on property refurbishments and extensions or new builds.”

What if the property was built by the owner many years ago and they have no records of the build costs, how can it be identified which costs can be claimed on capital allowances?

“It is not essential to provide records/invoices relating to the construction expenditure. Accounts and tax computations from the period of construction can often provide the necessary information, together with a conversation with the accountant that acted at the time. The land registry is often able to provide evidence of the price paid for land and this provides a basis from which to calculate the construction costs.”

If a B&B business doesn’t have sufficient taxable profits to benefit from capital allowances, could they still be eligible?

“Yes, it is definitely worthwhile to still identify qualifying capital allowances, especially if you expect your business to make taxable profits in the near future. Sometimes, capital allowances do not equate to an instant return, however they can be used to offset capital gains tax liabilities, passed to new owners and more. Ultimately, each set of circumstances is different, and I’d recommend carrying out an appraisal and seeking expert advice.”

Is this something that accountants usually deal with?

“Most accountants provide some form of capital allowances advice. However, as capital allowances claims are extremely complex, they are ideally suited to being dealt with on a standalone basis separately to other tax matters. Capital allowances specialists possess a specific skill set with a more detailed and up-to-date understanding of what is included in capital allowances than most advisors who deal with this area of taxation less frequently. This ensures that property owners get the largest cash injection possible; for example, at Catax, our average client benefit for a Capital Allowances claim is £53,000.”

So, what is the process?

“The first stage of the process is to collect all the information for the Capital Allowances claim, including information on the property purchase, as well as details of any refurbishment expenditure. A specialist will then assess your claim and undertake any technical analysis. Generally, a surveyor will then conduct a site survey of your building to see if there’s anything further that could be included within the claim. It is then up to the capital allowances specialist to maximise the value of your claim and produce a report, which is submitted by the HMRC via your accountant. Once the claim is processed and completed, you will receive your refund!”

To find out more information about Catax and its Capital Allowances service, contact Clare Mckee, Catax hospitality specialist clare.mckee@catax.com or call Clare on 0121 293 1197 | www.catax.com.

Make sure you read our essential guide to short-stay holiday let tax here - https://www.luxurybbmag.co.uk/airbnb-shortstay-holiday-let-tax-the-definitive-guide/

Tax

More Information On Tax Implications From Matt Bryant At Ocl Accountants

Capital Allowances for Commercial Properties

It is estimated that over half of all hospitality businesses in the UK haven't claimed their capital allowance entitlement, which could be worth hundreds of thousands of pounds. It is important to get your accountant’s early involvement to look at analysing historic expenditure to compile robust capital allowance claims. By identifying qualifying assets within the building which attract tax relief. In some cases, more than half the project expenditure will attract capital allowances, including professional fees.

New Developments

Where there has been constructed or undertaken the construction of a new building or an extension to an existing building you are able to analyse the costs incurred and to fully comprehend the construction processes involved and the documentation used to capture the costs, and hence maximise the level of allowances available. Early involvement in the construction planning phase can offer opportunities to proactively manage the tax relief process and often increase the level of allowances available.

Purchase of an existing property

A client may purchase an existing building, either for use in their business or as a commercial investment. In these cases, in order to claim capital allowances, the purchase price must be split down into the components of the building and the land. The changes to the rules for claiming capital allowances on second-hand plant and machinery fixtures, brought in by the Finance Act 2012, have a significant impact on property buyers. Whilst property sellers will not suffer directly from the new rules, there will be consequences for all businesses incurring expenditure on fixtures within commercial property and we offer a consultancy service to advise both buyers and sellers on the impact of these changes to them and the allowances within their properties. Timely advice can ensure that allowances remain available to purchasers and subsequent owners, which could otherwise be lost.

Refurbishment, alterations and fit-out works

Expenditure incurred on an existing building can be analysed in a similar way to the cost of a new building or extension, by a detailed review of actual invoiced costs. The value of relief available in connection with refurbishments, alterations or fit-out works is generally enhanced by capturing the cost of all incidental expenditure. Whilst the cost of the works may be capitalised, some costs may be capitalised repairs and attract 100% tax relief in the current year.

When you decide you want to sell your B&B you will have tax to pay.

• There are several factors which will impact your Capital Gains Tax position on the sale of a B&B, it is most certainly not a “work it out yourself” guide.

• It is advisable to get advice from your accountant before your sale. There are potentially several tax reliefs available. Some of the current reliefs available in 2020 which can help reduce (or eliminate) Capital Gains Tax are:

• Principal Private Residence Relief

• Letting Relief

• Annual exemption

• Entrepreneurs’ Relief

Relief everybody gets

Every person is entitled to a CGT exemption. For the tax year 2020/21 the exemption is £12,300.