SPONSOR MESSAGE: Recovering costs of decorative, branded and trade related building features

Discovering the full extent of capital allowances on decorative hotel ‘plant fixtures’ is something of a silver lining to recover the otherwise sunk costs of property improvements. Relevant features are those used in the hotel business, attached to the property and not normally removed in the event a property is sold.

Real after tax savings are often around 15% of fit out costs including related fees for the year the works are completed.

In this extract from 50 Essential Hotel Capital Allowances Questions Answered CPD, available from MK Capital Allowances, Mark Hoskyns explains.

We installed high quality floor and ceiling materials, do these qualify for allowances?
Helpfully the tax legislation does specifically provide for claiming deductions for costs of decorative assets intended for “the enjoyment of the public in hotel, restaurant or similar trades”. However, in practice, it’s essential these items are accurately described and referenced as there are conflicting case law decisions as to how distinct the decorative features are from the hotel building structure, which itself no longer benefits from tax allowances. Many specific items have become allowable after very involved and complex tax cases, which you can now benefit from if you have similar circumstances.

Are there any relevant cases?
IRC v Scottish & Newcastle Breweries Ltd (1982) was a landmark case in the consideration of ambience. It was found that wall plaques, sculptures and tapestries performed an important function to “promote the trade and attract custom” in the business. This extends allowances to artworks and all types of decorative finishes used within an hotel.

My tax inspector could just say special panelling forms part of the property?
There are a number of potentially qualifying items that are contentious such as panelling and partitions. Documenting the rationale for choosing a design option is helpful, particularly for decorative features and take advice on descriptions for these sorts of items in a claim for capital allowances.

We have created an events stage, can I claim?
Yes, the actual support steelworks, electrical supplies and associated structural engineering and design fees can be included with your claim for allowances on the lighting equipment. Sometimes these costs can be greater than the equipment itself.

Is sound insulation allowable?
Usually a claim for allowances is accepted, but you should retain all acoustic survey reports and project photos in the event negotiations are needed with HMRC.

Are capital allowances relevant for pod accommodation or tree houses?
Generally, if the structure is a permanent standalone feature with incoming mains services, electrical, water then these together with the internal plant fixtures and fittings should qualify. The entire cost of the building structure itself though, for tax purposes, is the setting “in which” the hotel business is carried on rather than the thing “with which” you carry on your business. If pod accommodation is easily moveable the entire cost is sometimes fully deductible.

So the intended use is critical?
Exactly, the intended use for any building feature or structure will influence how likely you are to qualify for capital allowances, especially for trade related items in hotel or leisure properties more generally.

By MK Capital Allowances

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