Top three tips on maximising tax relief on your hospitality refurbishment
How do you maximise tax relief received when completing a refurbishment? Whether you run a restaurant, a pub, a hotel, a café or a campsite, you will need to undertake refurbishments from time to time.
The right refurbishment helps to create welcoming and comfortable spaces, adding to the ambience and enhancing your guest’s overall experience, encouraging them to return time and time again. But how do you create the perfect space and keep as much money as possible in your pocket by reducing your tax liability at the same time?
Well, to make sure you get as much tax relief as possible on your refurbishment, you need to understand the tax implications and tax-saving opportunities associated with your project.
In this blog, we:
- Help you understand the tax treatment of your refurbishment
- Will give you our top three tops on maximising tax relief in your hospitality refurbishment
Understanding the Tax Treatments
Understanding which spends fit into which category and where you will get tax relief sooner will help you plan your refurbishment effectively.
Categories of Expenditure
Repairs and Renewals
Classified as revenue expenses, these costs are fully tax-deductible in the year they are incurred. This includes immediate upkeep like painting or minor repairs.
Capital Expenditure
Investments and improvements in land and buildings are viewed as capital expenses by HMRC, with very little to no immediate tax relief but potential benefits in reducing future capital gains tax.
Repairs vs. Improvements
The distinction between repairs (tax-deductible) and improvements (not immediately deductible) is vital. Repairs are seen as restoring or maintaining existing elements, while improvements enhance or add new features.
Plant and Machinery
This is quite a complex area, with tax relief rates varying from 6% to 100%, with claims being made under the Capital Allowances scheme.
As usual, HMRC don’t like to make it easy, and as such, they do not provide us with a definition of Plant and Machinery; they prefer to give a list of things that aren’t Plant and Machinery! Here’s HMRC’s guidance.
In a hospitality setting, Plant and Machinery include assets such as dishwashers and coffee machines.
Works Incidental to Plant Installation:
One little quirk in the rules is that expenses relating to installing or removing plant and machinery can also qualify for relief. For instance, changes made to buildings to accommodate new kitchen equipment or air conditioning systems may also be eligible for 100% tax relief.
Navigating Gray Areas and Negotiations
Some expenditures may not clearly fall into a single category and will require careful assessment and even negotiations with HM Revenue and Customs. The JD Weatherspoons case highlights some of the grey areas you are likely to come across and how HMRC and the courts are likely to treat them.
Top Three Tips for Tax Efficiency
If you only have plans for some quick repairs, maybe just a lick of paint, then you can crack on knowing you’re going to get instant tax relief, but if your projects are a bit more complex then these tips are for you!
1 – Plan
Now that you have a brief understanding of the different categories and tax treatments, create a clear plan for your refurbishment. Detailed plans will allow you to distinguish which expenses fall into which categories and between clear-cut cases and grey areas in tax treatments, allowing you to optimise potential tax relief.
2 – Find an accountant who has experience in your industry and get in touch with them early on in the project
Your accountant needs to be well-informed about changes in tax laws and have a deep understanding of relevant cases.
Involving well-informed accountants from the planning stage will allow them to review your plans and ensure comprehensive documentation is kept relating to the grey areas of the project, which will bolster your case in any potential HMRC disputes.
Also, elements like electrical systems, heating, and decorative aspects, which often get overlooked, can significantly contribute to capital allowance claims. A good accountant will ensure these items are categorised correctly and receive the maximum tax relief.
3 – Keep detailed documentation
Detailed invoices and contracts specifying the nature of the work (e.g., repair vs. improvement) can support tax claims. Make sure your contractors list clearly which costs relate to which work.
Conclusion
How do you maximise tax relief received when completing a refurbishment? Refurbishments in the hospitality sector offer significant opportunities for tax savings, provided expenditures are carefully planned and categorised. Early and ongoing consultation with qualified, well-informed accountants, detailed record-keeping, and having an understanding of the evolving tax landscape are key to maximising these benefits. This approach not only ensures compliance but also optimises the tax savings you can make in your hospitality business when undertaking refurbishments.
