Government will cut capital allowance rates from April 2012

Government will cut capital allowance rates from April 2012

Reduction in Capital Allowances

Hospitality businesses that are planning to spend more than £25,000 on plant and machinery are strongly advised to do so before April 2012 when the annual investment allowance will drop from £100,000 to £25,000.

The Institute of Hospitality are now strongly urging their members to lock in their Capital Allowance claims now,  and have issued the following statement on their web site.

In his inaugural Budget the Chancellor announced a reduction in the headline rate of corporation tax. The aim is to reduce the main rate from 28% to 24% by 2014 through annual cuts of 1% beginning on 1 April 2011.

Although this will help operators save and/or invest, the Chancellor is balancing the books by reducing the rate of capital allowances, which are effectively tax breaks that businesses receive in respect of expenditure on plant and machinery.

It is estimated that 20-40% of a hotel’s cost and 50-90% of a restaurant’s fit-out costs could qualify for capital allowances. So the cut in capital allowances represents a potentially sizeable increase in tax for many hospitality businesses.

Businesses are currently allowed to deduct the full cost of the first £100,000 of expenditure against taxable profits. From 1 April 2012 the Chancellor’s balancing act means only the first £25,000 will be allowed. In addition from 2012, any investment over and above £25,000 will now receive only a 18% tax deduction rather than the existing 20%. The allowances available on “integral features”, such as the cost incurred on electrical systems, cold water, heating and ventilation systems, and lifts, will also see their rate reduce in 2012 from 10% to 8%.

Although certain other expenditure on items such as certified “green” plant and machinery will still qualify for 100% first-year allowances, and the vast majority of hospitality businesses may not exceed the £25,000 annual allowance, businesses should carefully consider how and when to invest in plant and machinery to ensure they receive the optimum tax deduction. They need to look closely at whether the cost is a repair or a replacement, ensure contractors clearly identify each element of work carried out on their paperwork, and involve specialist advisers to ensure claims are maximised.

All Commercial property owners are strongly urged to make their capital allowance claim(s) as soon as possible, even if the amount of tax you have paid in the previous 2 years and expected amounts for this year are not very high, by locking in your claim now, you will still be eligible to benefit from the higher Capital Allowance rates of today.

For further information as to the possible potential claim you are entitled to, followed by your FREE site survey, please contact Salmon Business Group and speak with one of our Capital Allowance specialists.

Visit our web site:, alternatively call us direct on 01246 293011.