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Category Archives: Hotel

What are Embedded Capital Allowances?

It is a little known fact that commercial property owners can claim thousands of pounds in tax relief from their property in the form of Embedded Capital Allowances. Embedded items are inherent in the property, and much to some people’s surprise, range from air conditioning and security systems to kitchen and toilet fittings, which means there can be a lot of tax relief on a great deal of items.

David Martin, owner of Arctic Spas, explains his surprise in finding that he could claim:

“I couldn’t believe that my accountant didn’t do this, and when I found out, I was able to claim back a substantial amount of tax benefits. It turned out that all I needed was a specialist team to identify certain embedded items.”

It is estimated that nearly 80% of these allowances are yet to be claimed, which means there are many commercial property owners unnecessarily missing out on substantial tax refunds due to the complexity of the subject. Claiming these allowances is supported by HMRC who recently said:

“You can claim Capital Allowances on items that you keep to use in your business- these are known as ‘plant and machinery’. In most cases, you can deduct the full cost of these items from your profits before tax.”

Allan Mannion, Business Development Director at Capital Allowance specialists Headley Meredith Associates explains:

“One of the strangest aspects of this subject is that whilst the commercial property a business or individual owns is quite likely to be their highest single expense, they are rarely aware of the opportunity for tax relief that comes with it.

In the case of commercial property, you need a specialist team to determine the qualifying items embedded in the property, an understanding of how to use complex HMRC formula and an understanding of the complex tax rules. All of those skills can be applied by a Capital Allowance expert.”

The amount that can be claimed would surprise some, for example, the typical claim would be around 25% of the original purchase value of the property, which represents £125k of allowances in a £500k property.


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Why Hotels can claim so much in Embedded Capital Allowances

We work with people from many sectors so we thought we would look at a specific sector to show how effective and in some cases business changing it can be to conduct an Embedded Capital Allowances review of the commercial property involved in the business. Of all the highly effective areas we can look at, hotels is probably the absolute pinnacle of potential due to the nature of the property used in such a business.

Embedded Capital Allowances are applicable to a host of fixtures and fittings embedded within a building when it is purchased and/or added after purchase. Items such as lifts, radiators, heating systems, cold water systems, air conditioning, suspended ceilings, bathrooms, kitchens, security systems and fire alarms. These represent just a few examples of items that are frequently part of a building when its purchased and included in an overall price paid for the building. They are also typical of things that are included in any refurbishment, improvement or extension that may be done after the initial purchase.  All of these things (and more) attract significant relief under the terms of the 2001 Finance Act but are rarely claimed because it is complex and requires a specialist team to identify and quantify the amounts that can be claimed. Those amounts are considerable with hotels frequently achieving over 30% of the original purchase price identified as relating to claimable items. So if you paid £500K for your hotel you have the potential of a £150K claim.

All of that is done on a contingent basis so you pay nothing until the work is done and only then a small percentage of the amount identified as allowances and subsequently accepted by HMRC. A safe and effective way to put cash back into the business now and in the future.

Does it work? Can Headley Meredith Associates really deliver on these promises?

Here is a quotation from a client we work with who is also an accountant.

“I can, without hesitation, recommend the services of Headley Meredith Associates. They have provided me with a first class service and I have found them to be extremely thorough, informative and proactive throughout.”

Carl A Hall – Financial Accounting Services Limited

This is a risk free exercise, has little or no disruption to your business and potentially offers the greatest benefit available compared to any other business. If you own a hotel then this should be seen as a natural part of your cash flow planning and fundamental to good financial management of your business. To find out more on a totally commitment free and no cost basis contact us here.

Is it worth doing an Embedded Capital Allowances claim?

Many people when looking at the issue of Embedded Capital Allowances feel that it may be more trouble than it’s worth.

Recently we visited a client who owned 5 properties that they rented out. You would think that a company engaged in the rental of commercial property would be fully aware of this tax legislation, but they had done nothing and as a profitable company dutifully paid their tax liability every year, moaned about the size of the bill and then just got on with it. They had an excellent accountant but that accountant was not experienced in this specialised area and had no resource available to do the work required in terms of surveying, interpretation and preparation of a report in keeping with the HMRC requirements applicable to their specific situation.

The client recognised there may be value to this but were concerned that it would embroil them in a workload that was not conducive to their existing level of work commitments. We assured them that was not the case and they agreed to proceed. We gathered some simple information regarding dates of the property purchase, a copy of their most recent full accounts and the details of their accountant – that was it! No further hands on involvement from them at all.

We scheduled a meeting with their accountant which took 45 minutes and we then conducted a survey of the properties concerned using our own specialised in house surveyors. Within 6 weeks we had completed the report and identified £1.4million in allowances – 20% of the original purchase value of the properties. This represented a tax repayment and reduction of future tax liability totalling £280K of which over £90K was by way of a tax repayment going back over the last two years tax they had paid. They also had a significant reduction in their current year’s liability as well as further reductions going forward over a few years.

The question “is it worth it?” is certainly answered there with a resounding “yes it is” and the concern it will take up the client’s time is clearly not substantiated as we do all the work required with minimal input from the client. All UK tax paying commercial property owners (corporate or individual) can benefit from this review and that figure of 20% of the total original purchase price is highly valid. Even a property bought at £250K is likely to have £50K or more in allowances so there is no reason why all commercial property owners should not look at having this done. We do the work – the client sees the significant benefit.

Who would have thought it?

Even those who don’t follow football cannot have failed to be aware of the incredible story of Leicester City’s triumph in becoming the Premier League Champions against odds of 5000 – 1. How on earth can a football team go from just about keeping their place in the top flight last season to running away with the title this year? Many people have put forward theories of how a club with a tiny budget can succeed against clubs who spend more on one player than Leicester did on their whole team. The word that keeps coming back into those discussions is the word team. By putting together not just good players but a group of people who work well together, whose strengths complement each other and whose combination as a group working with a common aim is so much stronger than any single individual can be.

Similarly, in Headley Meredith Associates we have a team of people who all have great individual skills but who rely on the combined strengths of them all. It starts with a business development team who are tasked with identifying potential clients and then gaining an understanding of the specific situation that client is in regarding their commercial property and identifying if that suggests they could benefit from a review of their potential for Embedded Capital Allowances. Explaining this complex subject in a clear and concise way requires a deep understanding of the subject matter and an affinity with the client specific situation.

Once the client has agreed to proceed it is imperative that our surveying team can identify accurately and comprehensively all items that qualify for relief and that the combined knowledge of our chartered surveyors and quantity surveyors put together an accurate report highlighting all items that qualify. Writing a detailed report of these they can then liaise with the technical tax team headed by our chartered tax advisor so they can interpret the results of the survey using all current and correct HMRC rules and guidelines.

The final part of the equation is the writing of the report itself by our chartered tax advisor. Where necessary our specialist will communicate with the client’s accountant and other professional advisors and in conjunction with his colleagues on the surveying side of our operation he will accurately and professionally produce a final report that we know HMRC will be happy with – we have a 100% acceptance record of reports submitted.

Our team works as a unit, focused on producing the correct outcome for the client that we know delivers them significant allowances that had gone unclaimed and that will benefit them both in the short term and the longer term from a reduced tax liability perspective. We don’t get an open topped bus ride around the town in the same way that Leicester City players will but we do get great satisfaction of a job well done and delivering on our promises.