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.
National Minimum Wage (NMW) enforcement activity by HM Revenue & Customs has reached new levels. During 2018, only offshore tax avoidance enquiries exceeded those into NMW compliance, resulting in many businesses facing lengthy and costly reviews, fines and large repayments to workers.
Often, such employers have inadvertently made ‘technical breaches’ or fallen foul of a changed interpretation of the rules. Nonetheless, more than 600 employers were publicly named and shamed named in 2017/18 for owing millions of pounds to over 200,000 workers.
Leading hospitality businesses such as Wagamama, Marriott and TGI Fridays found themselves at the top of the ‘name and shame’ list, facing adverse publicity and comment. If large organisations with extensive resources can make mistakes, anyone can.
The way in which staff earnings are paid – basic pay which counts towards NMW income, and tronc, tips and gratuities which don’t – makes many businesses in the sector vulnerable to what may seem very minor technical mistakes or misunderstandings.
With NMW the devil is in the detail, as others have found out to their cost. You can easily put yourself at risk if you aim to pay at or above the NMW rates. This is true for staff paid hourly or for those who are salaried whose basic rate is designed to match NMW levels.
Remember, it’s easy for a current or former employee to complain to HMRC – and the onus is on you to disprove their allegation, not the other way around.
If your answer is ‘yes’ to any of the following questions, you urgently need to review your processes:
If any of these questions have left you concerned, we can help.
Whether you just have a few loose ends to tie up, need to make some changes to become NMW compliant, or are in the middle of an HMRC investigation, our experienced team will provide the help and support you need.
Contact us on 01727 838255 or at email@example.com to arrange a free initial discussion.
WE READ your recent article with interest [“London nearly at ‘peak restaurant’ as closures reach an all-time high”, November 7] .
London is a gastronomic success story that rivals any capital city but we agree that there are now almost too many restaurants vying for trade.
Every business in any commercial sector takes its chances in the economic survival of the fittest. We are now seeing unprecedented levels of restaurant closures but not simply because of sheer numbers.
Over-expansion and risky borrowing has seen off some well-known high-street chains. Each closure has been documented by the media but we mourn the loss of the many small independent businesses that do not warrant newspaper inches.
Such restaurants have not closed due to excessive expansion or negligent management but because of ever-increasing rents, extortionate rates and spiralling raw-produce costs — costs forced up by scale-hungry chains prepared to pay ridiculous premiums to dominate high streets.
The fabulous culinary success of this city is built on the hard work and creative spirit of the independent operator. Every chain started with a single shop. We urge London’s diners to support the independents.
Alliance of Independent Restaurants
“THE rise in restaurant rents and business rates — Philip Hammond’s recent gesture towards small operators will not impact usefully on the sector — not to mention increased staff costs, mandatory pension schemes plus competition in hiring arising from the prospect of Brexit, are not helpful to the restaurant business. It always will be a tough market where a profit margin of 10 per cent is viewed as an acceptable result. Probably a certain amount of schadenfreude infects the news around the demise of over-exuberant groups and chains but well managed they serve a purpose.
Independent restaurants reap the rewards of an ingrained eating out habit and definitely benefit from the chatter that arises on social media. My reviews mention seven or eight independent ventures every week.
Readers do support independents. They queue around the block to get into the latest thrill ride.”
This article originally appeared in the Evening Standard.
Leading South East law firm Thomson Snell & Passmore recently surveyed clients operating in the UK restaurant sector to gauge the overall sentiment regarding the challenges being faced by the mid-tier dining industry, dubbed the ‘casual dining crunch’.
Respondents were composed of independent restaurant operators in the South East of England and London-based agents also took part in the survey. The overall feedback was positive with the majority of respondents adamant that there will be opportunities for their businesses. In response to the question: “Do you see opportunities for your business (and those of your clients) emerging from the ‘casual dining crunch’?”, over three-quarters of the respondents (83%) answered with an optimistic ‘yes’. Delivery services are being developed by independents and chains alike to respond to client demands.
The 18 survey respondents identified the causes of the ‘casual dining crunch’ as detailed below:
Other findings in the survey included:
The UK restaurant sector is currently experiencing a period of change and adjustment. The industry is seeing the disappearance of existing brands who are struggling to meet rising costs, including staffing, however, this is balanced with the emergence of new brands and the growth of independent restaurants. Millennials who are a key demographic for eating out are more than ever before in tune with what they want and restaurant operators are responding. This is demonstrated by restaurants’ increasing engagement with social media platforms such as Twitter and Instagram.
Mark Hillier, Director of real estate firm DMR Property, who participated in the survey, observed: “We are seeing a landslide adjustment in the UK restaurant sector.” He predicted that, “We will start to see more exciting new brands offering better quality and diversity entering into the market.“
Alisa Sweeney, Commercial Property Partner at Thomson Snell & Passmore, who led the survey, commented:
“The key takeaway from this survey is that despite the challenges and oversaturation in the UK restaurant sector, otherwise dubbed the ‘casual dining crunch’, local independent restaurants see room for revival and opportunities for their businesses.
The survey findings, especially the responses from the restaurant operators, are very positive and show that it’s not all doom and gloom. The shifting sector is paving the way for smaller independent restaurant operators to establish themselves in the marketplace.
There is an abundance of opportunities for independents and chains alike to reassess their concepts and strategies, and to develop and grow their businesses. From innovating delivery services to trialling new dishes, restaurants who are willing and ready to adapt to change can continue to attract new customers.”
For more information contact:
Clementine Hay, Byfield Consultancy, firstname.lastname@example.org or 020 7092 3991.
Charlotte Eberlein, Thomson Snell & Passmore, email@example.com or 01892 701301
Thomson Snell & Passmore LLP
When facing endless rises in variable costs alongside the impending issues brought on by the B-word, being forthcoming with sustainable practices is often put on the back burner.
The recent lightbulb moment and external pressures have seen a sweep in plastic straws being replaced by cornstarch, as well as a novelty saving to the consumer when they bring in their Keep Cup for their coffee – never has it felt so smug to carry around a reusable mug. It’s not enough anymore to write a pretty blurb on the menu citing the happy life of the pre-steak cows, fit for a child’s bedtime story. Consumers want more – they know more too – but what does it really mean to be sustainable and how can it be done?
Firstly, let’s look at the younger age groups and the burgeoning pressure that will only heighten with the wash of new generations. Children in primary schools are taught about the different bins for the separated rubbish, whilst some adults are still slow to recycle their waste. 9 out of 10 Gen Z students believe that restaurants should create a menu that helps them make sustainable choices and 81% of them will choose a restaurant based on the environmental impact of the menu, according to a Hardens survey done on behalf of the SRA. For a generation whereby social media and all things digital will be part and parcel of their lives, recycling and their environmentalism will also be ingrained. People are finally ‘woke’ as consciousness and social awareness hits the mainstream.
“81% of Gen Z will choose a restaurant based on the menu’s environmental impact”
To be a successful restaurant in 2018 and beyond, your business plan needs to have a CSR section, as it would marketing or finance. Sustainability covers everything from how you treat the planet, to what’s on your plate as well as how you treat those people who are in your business, either visiting or working. It’s good for the environment and it is good for your business in the long term.
The ‘latte levy’ was declined which seems strange considering single-use plastic bags usage reduced by 85% in the first 2.5 years following the 5p charge, according to the Guardian, showing that the general public listen and, collaboratively, is a force to be reckoned with. Habits are altered and benefits are manifested. You only need to read the stats behind the 156.6% rise in reusable cups in the first six weeks of a Starbucks trial that charges customers 5p for ordering drinks supplied in a paper cup, according to Propel.
Food waste is another bigger, and rightly so. However, use this to your advantage and see commercial gains, like Skye Gyngell at Spring. Her 3-course scratch menu is just £20 a head, giving a lower entry price point to an otherwise premium menu, opening Spring up to the price-conscious theatre-going audience, selling them creative reincarnations of food otherwise destined for the bin. This menu alone has resulted in 40-60 additional covers between 5.30-6.30pm – a time when the restaurant was previously empty, according to Big Hospitality. Apps like Olio can also help you dispose of your food waste ethically and easily. They will arrange for their ‘food waste heroes’ to pick up your leftovers and will distribute accordingly. Food waste can also be avoided when cooking nose to tail like Neil Rankin who is leading the way in his no holds barred approach to cooking an animal.
“9 out of 10 Gen Z students believe that restaurants should create a menu that helps them make sustainable choices.”
On the other end of the spectrum, you could increase the amount of veg on the menu and each individual plate. Eating more plant based is friendlier for the environment and is growing in popularity for those opting for vegan and flexitarian lifestyles as it’s healthier too.
Reducing your restaurant’s carbon footprint can be done by offering more local produce. We’re an island nation so appreciate that the monotonous UK climate does not afford many everyday items such as lemons, olive oil, oranges – to name just a few. However, shopping seasonally, where possible, can result in locality. It also encourages regular menu changes, giving consumers choice and diversification – necessary in this world of reduced attention span and the constant need for renewal.
Kindness is king: Hackney coffee shop, Second Shot, employs people who have been affected by homelessness, they train them up and help transition them on to long-term employment elsewhere providing an apprenticeship that serves everyone. Redemption Roasters is another socially responsible company, giving ex-offenders a step up and training to reduce their chance of reoffending. They were approached by the ministry of justice to help with this initiative. These are just two examples of businesses giving people a leg up.
Packaging is such a minefield and needs to be tackled with often a lot of research and defiance; Research to find suppliers offering products in recycled AND recyclable packaging as well as defiance to insist that your key suppliers understand and offer this. A good company for this is London Bio Packaging who offer a range of quality compostable and recyclable products.
It’s enjoyable to see timely and relevant pop-up cafes emerge to wave the environmental flag. Most recently, Ecover’s Rubbish Cafe and Percol’s ‘most sustainable coffee shop’. These interesting concepts included (respectively) payment with plastic – packaging not cards – and a hooked up pedal bike demonstrating, to any willing participant, the energy needed to power a coffee machine for just one cup(it’s a lot and completely exhausting, in case you’re wondering).
It’s a journey so start slowly. Organisations are there to help, like the Sustainable Restaurant Association. There’s that old adage of ‘not eating ingredients that your grandmother wouldn’t have heard of’ – let’s flip that on its head and contemplate ‘what would our great grandchildren do’ as, after all, the future is theirs.