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The importance of capital allowances in the hospitality industry

04 May 2022

Truly understanding the inner workings of a client’s business can help uncover elements the client hadn’t thought about. This was certainly the case when working with the Parogon Group… 

An introduction to Parogon…

The Parogon Group is a well-known name in the hospitality industry, with a portfolio of 9 restaurants across Cheshire, Shropshire and Staffordshire. The company, which began life in 2007, has worked with us for over 10 years and we’ve had the pleasure of watching their business grow during that time. Our meetings together are always productive, and one our team look forward to, especially when a meeting takes place at one of their incredible venues. 

Did you know decorative assets can have a tax benefit? 

Each time they tell us they are opening a new restaurant, or one of their existing properties is undergoing a renovation, our first thought is “I wonder what capital allowances will be available in this situation”… okay, maybe our first thought is about booking a table, but the tax implications definitely come a close second, we are accountants after all. 

As discussed in our article, Understanding Property Embedded Fixtures and Fittings (PEFFs), fixtures and fittings can easily go unnoticed if not dealt with by an expert. In the hospitality trade, this can be even more important as items such as kitchen equipment, lighting and hot water systems may come to mind straight away but other items, including decorative assets which provide ‘atmosphere and ambience’, can be treated as plant under the right circumstances! 

With this in mind, we knew just the expert team to be our sous-chef. The Capital Allowance Review Service (CARS) had recently supported us on another capital allowance claim and we knew they’d be able to dig deeper and enhance Parogon’s tax claim. 

We asked CARS to first take a look at two restaurants which had undergone some form of work in the last two years. These were The Swan with Two Necks, which had gone through a complete renovation, and The Red House, Lilleshall, which was a brand-new restaurant opening.

Working together to build a claim

Once work had been completed on each restaurant, we gathered together the invoices relating to the works and highlighted the capital allowances we were aware of and passed this on to the CARS team. After reviewing the information available to them from both properties, CARS produced a forecast to help Parogon understand the potential tax relief which was available. Once this was discussed, we arranged for CARS to visit both properties to take a closer look. 

The site visits involved a detailed site survey to establish all the qualifying items that had been part of the renovations. For CARS, this is a crucial step as it gives them a fresh look at the building, away from what has been provided within the invoices. Each qualifying item is recorded, valued and itemised for the tax break it will relate to. 

Whilst many of the items that qualified for capital allowances were fairly obvious; gas ovens, fridges and extractor fans to name a few, other assets were less obvious but still qualified, such as electric car parking points, toilets and those all-important wine racks. 

But what about those decorative assets you mentioned? 

Of course, how could we forget those! Decorative assets qualifying as plant were discovered in the restaurants too and these included fitted mirrors, a feature wall in the dining area and even a garden pergola. 

What did the findings help generate? 

After visiting the properties, CARS pulled together a report that identified £322,000 of unclaimed capital allowances for the two properties, which made up 33% of Parogon’s total expenditure. £650,000 of Structures and Buildings allowance tax relief was also identified. They will also benefit from an initial tax saving of £61,000 and future savings of £118,000.

Parogon Case Study Stats
 

With such fantastic results, we’re looking forward to working with CARS on the rest of Parogon’s properties now and in the future. 

Lisa Jones - Parogon Quote

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