What qualifies for capital allowances?
An important Tribunal decision which analysed the availability of capital allowances for the conversion, fitting out and refurbishment of public houses has been published. The taxpayer in this case operated almost 300 public houses throughout the country and had claimed that it could offsetsome of the cost of renovating its public houses using the then applicable legislation to capital allowances.
This Tribunal decision followed on from an earlier Tribunal decision, involving the same taxpayer, dating back to 2007. Following this decision partial agreement was reached between the taxpayer and HRMC as to whether certain expenditure qualified for capital allowances or not.
However there remained a number of contentious issues, with the taxpayer claiming that HMRC was taking an overly zealous approach.
In the latest case the Tribunal examined the following main areas:
- Tiled splashbacks – The Tribunal decided that tiled splashbacks to any piece of equipment that needed them would qualify for capital allowances as being incidental to installation of the equipment concerned. For example tiled splashbacks to sinks and the immediate surrounds of lavatory basins.
- Lighting and electrical installations – The Tribunal found for example that toilet lights had a specific function of providing an attractive ambience to the toilets. The Tribunal decided that toilet lighting and other incidental expenditure such as installing a drop ceiling were incidental to the installation of plant.
- Overheads and professional fees – The Tribunal provided some clarification on an appropriate methodology for identifying tax relief and the use of a global apportionment can be acceptable.
The attempts by the taxpayer to write down the cost of decorative planning in public houses was rejected as was most of the expenditure relating to floor finishes in the toilet and kitchen areas. However, the Tribunal allowed special flooring in the disabled toilets as this flooring served an important function in helping wheelchair traction.
This case may be relevant to businesses that have incurred similar types of expenditure when calculating their capital allowances claims. The Tribunal decision is still not final in respect of either the two sample properties referred to in this case and other issues may arise in respect of the other 286 public houses which the taxpayer operates.