Gordon Brown's changes to capital allowances 'devastating' for hotel industry

Chancellor Gordon Brown’s budget changes to capital allowances could be devastating for the hotel industry, experts have warned.

The Chancellor announced yesterday plans to phase out Industrial Buildings Allowance – a 4% tax relief claimable annually for 25 years - over the next four years.

This will see tax relief for capital allowances on building fixtures reduced from its current 40% to 25%, 20% and then 10% up to 2008/2009 before being phased out.

Marios Gregori, director of corporation tax at accountant PKF, warned the additional costs would inevitably have to be passed onto customers. Hotels recently acquired, he added, would be hardest hit.

Gregori said: “Owners who planned on the basis of receiving tax relief over 25 years will now have to review their figures because they’ll only be able to claim for the next four. In a sector where long-term financial planning is particularly important, these changes could be devastating.”

David Woodward, head of capital allowances at KPMG said a reduction in corporate tax, also announced in the budget, was being funded by the reduction in capital allowances.

“Many businesses especially those in the more capital intensive sectors such as hotels, are potentially going to be worse off,” he said

Capital allowances can be claimed on certain purchases and investments. A proportion of these costs can be deducted from your taxable profits and therefore reduce your tax bill. They are available for plant and machinery, buildings, research and development. 

Industry bodies slam rise in duty >>
 
PKF website >>

KPMG website >>

By Emily Manson

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