Hotels: tax saving opportunity

In last week’s Budget, the Chancellor announced an extension to the threshold for expenditure on which businesses undertaking capital investment can claim 100% tax relief. This relief is available through the Annual Investment Allowance (AIA) which from 1 April 2014 (6 April for income tax payers) will double from £250,000 to £500,000. Unlike the £250,000 limit that was due to expire on 31 December 2014, the increased AIA will remain in place until 31 December 2015.

This means hotels planning on investing in room upgrades, spa facilities or hotel fixtures will have access to twice the amount of up-front tax relief on expenditure that qualifies for capital allowances. Businesses with a 31 December year end will, broadly, be able to claim allowances under AIA totalling £937,500 for 2014 and 2015 taken together. Compared to the pre-Budget position, this translates into a maximum corporation tax saving of around £120,000 in the next two years (assuming a rate of 20% applies); businesses subject to income tax may make an even greater tax saving. In essence this is a cash-flow benefit, because all of the expenditure concerned would eventually have been allowed for tax over future years at either 18% or 8% on a reducing balance basis.

Hotel businesses thinking about carrying out significant works should consider doing so within the ‘window of opportunity’ from 1 April (or 6 April) 2014 to 31 December 2015 as the AIA threshold is scheduled to reduce to £25,000 from 1 January 2016.

The Chancellor also announced a three-year extension until 31 March 2020 of the 100% allowance for investment in plant or machinery in designated Enterprise Zone sites. London only has one such site in the Royal Docks area in Newham and a number of hotels have already taken advantage of this relief.

For advice on getting your fair share of the tax reliefs available, please consult Stephen Martin.


Stephen Martin

Related links

Hotels and leisure
Business tax