Is Your Hospitality Business Missing Out On Valuable Capital Allowance Reliefs?

Is Your Hospitality Business Missing Out On Valuable Capital Allowance Reliefs?

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.

And things are looking up…

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.

What's included

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.

More than the limit?

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.

How to claim

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. 

What to look out for

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.

What next?

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 charlotte.read@wmtllp.com or visit our website www.wmtllp.com.


Tax Efficient Profit Extraction for Business Owners

Tax Efficient Profit Extraction for Business Owners

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.

Main ways to extract profit

There are several options business owners can use to take money out of their business. The four main ways are:

  • Salary
  • Dividends
  • Pension
  • Sale of the business

Salary vs dividends

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.

Pensions

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.

Business Sale

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.

The Optimal Solution

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.

How we can help

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 charlotte.read@wmtllp.com or visit our website www.wmtllp.com.


Tax Efficient Profit Extraction

Tax Efficient Profit Extraction

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 victoria.nicoll@wmtllp.com.


National minimum wage – are you sure your hospitality business is compliant?

National minimum wage – are you sure your hospitality business is compliant?

National minimum wage – are you sure your hospitality business is compliant?

National minimum wage – are you sure your hospitality business is compliant?

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.

Why is our industry a target for NMW enquiries?

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.

Are you at risk?

If your answer is ‘yes’ to any of the following questions, you urgently need to review your processes:

  1. Do you keep time records for hourly staff, but not for salaried staff?
  2. Do you record clocking on and off times, but not break times?
  3. Do your contracts for salaried staff fail to explicitly state the number of basic hours they are expected to work in a year?
  4. Do you pay your salaried staff on a fortnightly or four-weekly basis?
  5. Do you ask staff to supply (or cover the cost of) clothing they wear as part of a dress code (e.g. white shirt, black shoes)?
  6. Does a worker ever take a trial shift that you do not pay them for (eg a failed trial shift)?
  7. Do you charge your live-in staff more than £49 per week for rent and/or bills?
  8. Do your staff pay deposits for uniforms, locker keys, swipe cards and similar items?
  9. Do your staff buy goods and/or services from you that they pay for via the payroll?
  10. Do you have a salary sacrifice scheme in place for workers on NMW?

How we can help

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 hospitality@wmtllp.com to arrange a free initial discussion.