Is Your Restaurant Missing Out On Capital Allowances?
“What’s a capital allowance?” we hear you ask. Capital allowances are a form of tax relief that businesses can claim on certain types of expenditure. Restaurant and café owners in particular are often overlooking substantial tax allowances. This usually happens because their accountant may only pick up simple and obvious items such as chairs, tables, and crockery. When fitting out or refurbishing a restaurant or café, the construction expenditure is generally not very well detailed for capital allowances, therefore these can easily be missed.
So, to take full advantage of capital allowances, it is important for you to be aware of the rules surrounding them before purchasing machinery, equipment, or appliances for your business.
Not to bore you with too many details, but there are two main types of capital allowances: the annual investment allowance (AIA) and writing down allowances (WDA).
The AIA allows businesses to claim 100% tax relief on the first £1 million of qualifying capital expenditure in a tax year. This includes most types of plant and machinery, as well as certain types of building work, such as alterations to make a building more accessible for people with disabilities.
WDA, on the other hand, allows businesses to claim a percentage of the cost of qualifying assets as a tax deduction each year. The percentage varies depending on the type of asset and its expected useful life.
Being aware of capital allowances is important for businesses for several reasons:
1. Cash flow benefits
By claiming capital allowances, you can reduce your tax bill, meaning a healthier cash flow. This can be especially important if you’re a small business or start-up, since you’ll likely have limited cash reserves.
2. Maximising tax relief
To take full advantage of capital allowances, you need to understand what types of assets qualify for capital allowances, the timing of the claim, and any restrictions or limitations that may apply.
For example, some assets may only qualify for partial relief, while others may not qualify at all. There are also specific rules around the timing of capital allowance claims, such as the requirement to claim within two years of the end of the tax year in which the expenditure was incurred. If you’d like to learn more about this, or if you have recently purchased items that you think may qualify for capital allowances, please feel free to get in touch with our team.
3. Avoiding mistakes
Failing to claim capital allowances correctly can result in errors on your business’ tax return, which can lead to some pretty hefty penalties and interest charges. Trust us, these are not nice. This can be particularly disastrous if the mistake is not discovered until several years later, when your business may no longer have the relevant records to support a claim.
4. Planning for the future
Being aware of capital allowances can also help you to plan for the future. If your business is planning to purchase appliances, understanding the potential tax relief available can help you to make an informed decision about the timing of the purchase and the types of assets to invest in. In addition, you can use capital allowances as part of your cash flow and tax planning strategies. For example, by deferring a capital allowance claim to a future tax year, you can reduce your tax liability in a year when profits are expected to be higher.
Get in touch with us to avoid any costly mistakes
By understanding capital allowances, you can maximise your tax relief, avoid making costly mistakes on your tax return, and improve your oh so important cash flow. As such, we believe it’s vital for businesses to seek professional advice and guidance before making any significant capital expenditure. If you would like to talk to us about this, book a free discovery call or get in touch via our contact form.
At MSF Associates in Leeds, we have years of experience serving the food and hospitality industry and delivering excellent service to our clients. This is why we understand you and your business perfectly and know just how to help you. Book a free 15 minute discovery call with our team today.
