Keeping track of any up-front investments in property, efficiency or product development initiatives can help hospitality and leisure businesses to drive value and manage cash flow positively. In a surprising number of cases, such investments could qualify for R&D tax relief or form the basis of a capital allowances claim.
In a sector that is required to respond quickly to changing customer preferences and fierce market competition, it is important to stay one step ahead by investing in new service offerings, refurbishments and sales and marketing activities on a regular basis. Crucially however, some business owners are not making the most of their investments, and are failing to claim back significant sums in the form of tax reliefs and capital allowances. In an industry where evolution is crucial, business leaders must be sure to analyse and execute claims promptly and efficiently in order to free up funds for future investment.
The R&D tax credit scheme was launched by the Government in 2000 to incentivise businesses investing in innovation. Under the scheme, profit-making SMEs can recoup up to 46p of every £1 invested in qualifying activities and even those that make a loss can claim a tax refund of up to a third of the money they invest. While claims are on the rise, many businesses are still missing out on R&D tax relief because they simply don’t believe that the investments they are making would qualify for the scheme. Tellingly, hospitality and leisure businesses are among those least likely to claim R&D tax credits. HMRC data reveals that less than 1% of claims for R&D tax relief received in 2014/2015 were submitted by ‘accommodation and food’ businesses.
There are a number of different types of investment that may qualify for the scheme. These include:-
Investment in new products or processes, the creation of websites and software for internal or external use, data management and analysis, sustainability efforts and carrying out work on listed buildings. Some of the more intriguing R&D claims submitted by hospitality and leisure companies include a restaurant that used a 3D printer to make bakery and other food products and a hotel that invested in glass structures that help to conserve energy on a golf course by adapting existing technologies to turn grass clippings into energy.
When businesses are considering ways to make the most of their investments, it can be helpful to ask ‘what problems have been overcome?’ Approaching the subject in this way can often uncover opportunities to claim R&D tax credits that they may not have been thought of previously. The timing of claims is also important, as claims can only be made for activity dating back two accounting periods. For this reason, a full assessment of the company’s investments and other activities should be carried out at an early stage and tracking processes should be put in place to help monitor R&D spend on an on-going basis.
In the case of capital allowances, it may be possible to submit a claim to recover costs associated with building or refurbishment projects. Depending on the use of specific materials or equipment, it may also be possible to increase the value of such claims and reduce the company’s corporation tax liability further.
The majority of claims for capital allowances attract tax relief of either 18% or 8% on the expenditure incurred, however businesses should also consider and maximise first-year allowances. In addition, where a business has invested in plant and machinery that is energy-efficient or otherwise benefits the environment, it may also be possible to claim ‘enhanced capital allowances’, which are also calculated based on 100% of the capital investment.
Any investment decision should be undertaken following an extensive evaluation of costs, business outputs and the projected return on investment. Care should be taken to utilise R&D tax relief and capital allowances to their full potential, freeing up extra resources for growth and new business development. Driving the business forward in this way will allow firms to streamline processes and access new products and services to gain an edge over the competition and maximise revenues.
Dave Gosling is partner and head of the hospitality and leisure sector at accountancy firm Menzies LLP
The firm has authored a whitepaper which outlines the key considerations and steps businesses should undertake to unlock R&D tax reliefs and capital allowances, see the full report here.