Georgina Davis – Business Tax Specialist
As more of us shop online some retailers are strategically moving away from the traditional high street store, but that is not the end of bricks and mortar for retailers as many move towards opening concept stores that complement their e-commerce offerings to create experiences for the modern-day shoppers.
Investing in these new concepts can be a costly exercise whether you are investing in purchasing the property or fitting out a leasehold property there are many tax reliefs available that can minimise your tax exposure and ease cash flows.
It can be difficult to identify and quantify the costs during a fit out or refurbishment that are eligible for capital allowances so there is a risk that tax relief can be easily overlooked.
Plant and machinery & fixtures and fittings
Capital allowances can be claimed on expenditure for the normal fixtures and fittings that you would expect to see in a retail store. As part of the fit-out costs retailers should be looking further as there may be additional savings that can be made beyond these.
Capital allowances can potentially be claimed on the integral features of the building such as lighting designs, or expenditure on items used to create in store ambience such as decorative items including artwork. Relief may also be available on the cost of building alterations connected with the installation of plant and machinery.
There has not been a better time for businesses to invest in capital expenditures with the annual investment allowance (AIA) being temporarily increased to £1,000,000 from 1 January 2019 to 31 December 2020 allowing businesses to claim 100% of qualifying expenditure on plant and machinery in the year it is incurred.
Anything over this has an annual writing down allowance of 18% or, if an integral feature i.e. air conditioning system, 6%. Planning for off-setting the 100% allowance is essential here for maximum relief if you have both integral features and items entitled to the 18% allowance.
Structures and buildings allowance
This is a new allowance applicable from 29th October 2018.
A company can claim 2% per year over 50 years on expenditure for construction of new commercial buildings or renovations to existing ones. This will be a valuable tax relief for expenditure that would previously have not received any relief.
Finalised legislation for this allowance is expected later this year and therefore any claims would initially need to be put on hold.
Section 198 election
If you are about to purchase or lease a second hand property you will need to consider the s.198 election. This is an election between the seller and buyer to agree a value for the fixtures and fittings of the property. This value is then brought into the buyer’s capital allowance claim.
If this election is not made there is a risk the buyer would not be able to claim any capital allowances on the property’s existing fixture and fittings, potentially losing out on tax relief.
It is advisable the election is agreed on as part of the commercial negotiations.
Land remediation relief
Tax relief of 100% is available, plus an additional deduction of 50%, for qualifying expenditure incurred by companies for cleaning up land acquired from a third party in a contaminated state that was caused from industrial use.
As an example if a building contains asbestos as a result of industrial activity, the cost to remove the asbestos could qualify for the relief.
Finance of property
Interest charged on loans for financing the property is tax deductible.
If the property is held outside the business, perhaps because the company could not obtain a loan, you have the option of the business paying rent to you. Although the rent will be charged to income tax on you, the rent payment is tax deductible for the business.
Stamp Duty Land Tax (SDLT)
Whilst there are no reliefs here you need to take into consideration that SDLT will be charged upon the purchase price or lease rentals of the property at non-residential rates. If the property has residential use i.e. flat above a shop the SDLT will still be at the non-residential rates.
As well as tax relief it is also important to consider the commercial aspects when opening a new store or warehouse.
Owning property can be risky and many companies choose to hold property in a separate holding company. There are no further tax implications to holding the property separately. This will then separate the risk from the main trade and protect its profits.
How can we help?
It is key to consider the tax and wider consequences of investing in opening a new store at an early stage to ensure opportunities to optimise tax savings are not lost. Our tax specialist can help maximum your tax relief to ensure you are making the right choices for your business.