It is estimated that half of all hotel, pub and restaurant businesses in the UK are missing out on thousands of pounds worth of capital allowance tax relief.
Capital allowances are available when you buy, build or refurbish commercial property. For hospitality businesses this could include anything from the kitchen equipment, lighting, decor, fit-out or even the air conditioning or hot and cold-water systems in the premises the business operates from. This is true for both owned premises or for building with a long lease.
In the 2018 Budget, the Government announced an increase to the Annual Investment Allowance (AIA) from £200,000 to £1m per year.
The AIA allows you deduct 100% of the costs of ‘plant and machinery’ you purchase from your annual taxable profit for the year, up to the annual limit. That’s up to £200,000 of corporate tax relief in the same year you incur the costs.
For the hospitality industry the following items could qualify for capital allowance claims:
New developments – new builds or the extension of an existing premises. By involving a tax advisor in the construction planning phase, the tax relief process can be managed proactively to make the most of reliefs. A new ‘Structures and Buildings Allowance’, for newly acquired commercial buildings, is now available to give relief against tax over a 50 year period for the costs of the actual building itself. This only applies to new construction costs incurred after 29 October 2018.
Buying or selling an existing commercial property – If you are buying or selling property it is now important to make sure the seller has captured any reliefs already in the building, or the new purchaser will be limited in what further reliefs can be claimed (a “pooling” requirement). It is worth making sure you have maximised your own reliefs before passing these opportunities to a new purchaser. If you are buying, being aware of the available reliefs will ensure you do not miss out on future claims.
Renovation of existing buildings – expenditure on refurbishments, alterations and fit-outs should be carefully reviewed to make sure you maximise the tax reliefs available.
Plant and machinery costs – qualifying items such as kitchen equipment, furniture, tills and other computer systems as well as building fixtures, such as kitchens and bathrooms could also be claimed for.
When a business spends more than the qualifying limit, additional expenditure generally attracts additional annual writing down allowance depending on the type of asset. This will reduce from 8% to 6% from April 2019 considering the recent increase to AIA.
Calculations for claiming capital allowances are complicated. Most business owners who own commercial property are unaware of the potential benefits on offer.
To make the most of any claim, it is worth enlisting the help of a professional advisor to fully investigate the claims potential. Variables such as accounting period and taxable profits need to be considered, and expenditure needs to be examined carefully to ensure all claimable assets are included.
We work with experienced surveyors and a free of charge consultation can be organised. Work can be done on a contingent basis, so the fee is linked to any tax savings made.
Even if you don’t have enough taxable profits to benefit from capital allowances it is still worth investigating the claims process. This is because if you identify the capital allowance now, you may be able to claim them in future years.
If your business is part of a group of companies (a common occurrence in the hospitality sector), your capital allowances can be set against other companies in the group.
It is worth noting however that only one claim for AIA can be used in a group of companies or individual companies under common control.
If you are a UK tax payer who owns or is planning to buy business premises, we can help you make the most of capital allowances, so you claim all the tax relief you’re entitled to.
For more information or to arrange a review contact Anne-Maree Dunn or Victoria Nicoll via email@example.com or visit our website www.wmtllp.com.
You’ve worked hard to set up your business and things are going well. You want to reward yourself for your efforts. But how do you take money out of your business in a way that is both tax efficient and right for you?
There are a number of factors that need to be considered when extracting profits from your business. First and foremost, you should think about the tax you will pay on the money you take out of your business. The nature and structure of your business, your lifestyle needs, and personal goals are also important factors to look at when choosing the right option.
There are several options business owners can use to take money out of their business. The four main ways are:
The age-old question of ‘salary vs dividend’ is important not just from a tax perspective but in considering the numerous commercial, financial, personal and longer-term consequences of choosing the ‘correct’ combination of the two.
Dividends can be paid to anyone who owns shares in the business providing the company has enough profits or reserves.
In 2017/18 the first £5,000 of dividends were tax free, but this was reduced to £2,000 per annum in the 2018 budget. Any dividend amounts over the newly reduced allowance are taxed at the banded rates shown in the table below. Dividends, unlike salary, are exempt from National Insurance Contributions but they are not a tax-deductible expense for corporation tax purposes.
From a tax perspective taking a modest salary alongside dividends can be beneficial. By taking a minimum salary below the income tax rate threshold (£12,500 for 2019/20) and keeping your salary just above the qualifying threshold for a state pension, you can make the most of your wage.
When it comes to saving for retirement, you could see some immediate benefit from pension contributions. Pension contributions allow you to extract profit from your company while still benefiting from tax relief.
If the company pays into the pension fund, this money isn’t treated as a taxable benefit on the individual but it is deductible for corporation tax, meaning it is tax efficient.
There is currently a £40,000 limit on the contributions made into an individual pension pot each year. This is however, reduced for any person with an annual salaried income that exceeds £150,000.
When withdrawing money from your pension pot, the first 25 per cent is tax-free. After this, any withdrawals will be taxed at the current tax rate, which is generally lower than at the time the money is paid into the scheme.
For hospitality businesses it is also worth considering how the use of a Tronc scheme and its tax benefits can factor into the profit extraction practice.
Another option could be to ultimately sell the company. If the company is a trading company shareholders could be entitled to Entrepreneurs Relief. The owner would pay 10% tax on the sale of the shares, but any remaining profit within the company would have already been subject to corporation tax at the current rate.
If you are considering business sale as an option, it is wise to consider how easily you can sell the company and whether it will generate enough capital to achieve your goals – whether they are funding for a new venture, a career change, or retirement.
If you are viewing your business as your ‘pension’ it may be worth considering contributing to a personal pension alongside this as it remains a ‘better’ tax rate and can be more secure.
Ultimately, the optimal solution is about balancing a combination of options to make the most of your money and all available tax reliefs and allowances.
As well as the four options detailed above, you may wish to consider benefits (life & health insurances, phones, tax efficient vehicles etc), renting personally owned assets, bonuses, loans and interest on loans, personal expenses and family tax planning as options for maximising your renumeration package.
What is best for you will depend on your lifestyle needs, personal goals and your commercial situation. With so many options available, it is advisable to seek advice.
To make the most of your tax situation we can review any current renumeration strategies and help you plan for the future to make the most of your money.
To arrange a remuneration review, contact Victoria Nicoll at WMT Accounting via firstname.lastname@example.org or visit our website www.wmtllp.com.
An AIR workshop with a presentation and discussion led by Thomas Snell and Passmore.
Identify the status of workers producing IP for your business. Are they employees? If so, are the creating the IP during the course of their employment? If so, the IP belongs to the employer
If there is any doubt about whether your workers are employees or if the projects they are working on fall outside the scope of their employment, it would be worth carrying out a review of your employment contracts.
When commissioning any works from non-employees, such as consultants, photographers, graphic designers, chefs, web designers or possibly even from co-directors,
make sure you always confirm the commission in writing and where necessary, obtain a written assignment of any IP they will be creating for you – or at the very least a suitable licence to give you control of the work.
Ensure that recipients of confidential information sign a confidentiality agreement before releasing confidential information to them. This includes employees, consultants, and possible trade partners. Include a confidentiality clause in employment contracts
Make staff aware that it is a breach of confidential information and their terms of employment to pass on confidential information of your customers. This may also result in fines from the ICO.
Restrict access to confidential information. Make sure that information is disseminated on a need-to-know basis.
It is always sensible to keep records that show what projects each employee or consultant has worked on, so if legal action needs to be taken, you can prove what information they are likely to have in their possession.
Remind departing employees and consultants of their obligations of confidentiality and ask them in writing to confirm that they have returned all company property, which includes IP and confidential information.
Consider registering trademarks or designs, if these are valuable to your business and you want a monopoly right to use the brand
Businesses seeking court protection need to take action promptly to restrain any misuse of IP rights or confidential information.
Delay is a bar to obtaining an injunction. So acting as soon as you discover the problem is key. Cease and desist letter to secure undertakings followed by court action if sufficiently serious. Alternatively notice and take down procedures.
However, are there non legal options? SEO, working with marketing agency that can help boost rankings and reduce ranking of negative pages?
Finally, think about monitoring your IP to enable swift action to be taken.
This means that periodically you should carry out internet searches, trade directory searches, company name searches and possibly even trade mark searches, to see whether any of your IP is being misused.
Consider non-legal alternatives to deal with disputes such as SEO.
For further advice on this subject, please visit the Thomas, Snell & Passmore website.
On Wednesday 22nd May, WMT Corporate Tax Director, Victoria Nicoll hosted an interactive session on ‘how best to extract profit from your business’. This included a round-table discussion on how to apply some general principles to different scenarios, businesses, and shareholder groups.
During the session, we looked at the age-old question of ‘salary vs dividend’ from multiple perspectives – taxation (of course!) as well as the commercial, financial, personal, and longer-term consequences of choosing the ‘correct’ combination of the two forms of income.
This led to an interesting discussion on the (often under-used) company pension contributions to personal pension plans as well as how the use Tronc schemes can factor in your profit extraction approach. We talked about benefits in kind, loans (both ways), expenses and use of personal assets amongst other things.
These informal sessions are a great way to learn about the practical and technical issues you and your business may face, with the additional benefit of learning from real-life examples. They are also a great opportunity to ask questions about how you can apply general principles to your particular situation or business.
For advice on extracting profit from your hospitality business, contact WMT’s Victoria Nicoll by calling 01727 808204 or by emailing email@example.com.