IMH Advisory LLP advised an hotelier who acquired an existing hotel from an administrator. The administrator proposed a CAA2001 s198 election for circa £500,000. The election included the Plant and Machinery Allowances (PMA) within a new extension, plus a residual amount for the older plant in the original hotel.
We were initially engaged to advise whether the administrator’s proposal was reasonable or whether further PMA could be identified. Based on a CAA 2001 s562 just and reasonable apportionment of the price paid, it became apparent that the proposed election was reasonable. We advised the client to agree the s198 election value, giving them certainty with HMRC on these assets.
However an s198 election only applies to fixed plant and cannot include chattels (loose equipment and furniture). We estimated the value of the chattels, using depreciated replacement cost, identifying a further £200,000 of capital allowances.
IMH Advisory LLP were subsequently engaged on a circa £350,000 refurbishment to the public areas, including the lobby, restaurant and bar. As this was an existing building, CAA2001 s25 applied. This treats building alterations incidental to the installation of plant and machinery as if they qualify for PMA. We were also mindful of the Upper Tax Tribunal decision in JD Wetherspoon, which is relevant in this sector.
As part of the refurbishment, the client also removed asbestos installed by the previous owner. This qualifies for Land Remediation Relief (LRR), which provides a 150% tax deduction for Qualifying Land Remediation Expenditure (QLRE).
It is worth noting that for a loss making UK company, instead of claiming LRR, a cash tax credit is available equivalent to 24% of the expenditure incurred.