Giving pubs a break

When pubs are bought or refurbished, a tax break, called a 'capital allowance', is available on the part of the cost relating to business apparatus, known as 'plant and machinery'.

In the context of a pub, this is tax-speak for various fixtures and fittings, obvious stuff like bar furniture, but also less obvious things like loos and sinks and heating. In an average pub, this is worth up to 15 per cent of the cost. So a pub costing £500,000 might have 'hidden' tax breaks worth £75,000.

But disagreements can arise over just what counts. Last summer a tax tribunal heard an appeal by JD Wetherspoon about which fixtures and fittings attracted tax relief on pub fit-outs. The tribunal's decision, delivered at the end of last year, affects all pub owners.

In all, more than 120 assets were in dispute. Rather than consider them all, the tribunal picked one - timber wall paneling - to illustrate general principles. Wetherspoon said it was 'plant', not just because it was part of the premises but because it also functioned as 'apparatus' by creating a pleasant atmosphere and attracting custom. The tribunal disagreed, but failed to apply existing guidance from the courts. Consequently, Wetherspoon is expected to appeal.

Meanwhile, the case illustrates that tax relief may be claimed on many fixtures which the average pub owner might not think of as 'business apparatus'. Anyone buying or refitting a pub should seek specialist advice.

Narrow interpretation

The second dispute was about building alterations incidental to the installation of plant. These also attract tax relief. The trouble is that the taxman interprets the phrase very narrowly. However, parliamentary debates show that it was intended to apply widely, allowing, for example, things such as fitting double glazed windows to make air conditioning effective.

The tribunal looked at wipe-clean tiling in a kitchen. Wetherspoon argued this was a hygiene requirement, due to the volume of steam produced by cookers. But the commissioners held that the link was not close enough to secure tax relief. A cooker could be used perfectly well without the tiling.

Conversely, drainage and toilet cubicles did qualify for relief. The taxman has for many years tried to deny tax relief for cubicles, suggesting that toilets functioned perfectly well without them. But who fits banks of toilet cubicles without adding dividing walls? The message again is that where pub owners have installed 'plant' in an existing building, they should claim tax relief on any incidental building works, wherever possible.

It has long been accepted that where a pub is bought secondhand or newly-built, the part of the cost relating to fixtures (including services) is tax-deductible.

Furthermore, the cost may be uplifted by including builder's 'preliminaries' - such as site management - and professional fees. However, the taxman has historically sought to arbitrarily disallow a large proportion of such costs - an approach which was dismissed by the tribunal.

Instead, the tribunal suggested that, while any allocation should be as accurate as possible, if (as in the Wetherspoon case) there are a great many items, a pro-rata apportionment is reasonable.

This sounds like an obscure tax point, but it can add 10 per cent or more to a claim for tax relief, so pub owners should not fail to consider it.

As many questions as answers

The tribunal decision was an important one, but threw up as many questions as answers, with neither side completely satisfied. Appeals from all sides seem inevitable, and the case could rumble on for years.

So what does this mean for the average publican? Pub owners, even if they are not as big as Wetherspoon, can draw many positives from the tribunal decision, despite the unanswered questions.

In addressing 'unusual' items of plant, plus associated building costs and professional fees, the case drew attention to three of the many ways tax relief claims may be legitimately increased.

There is nothing controversial about claiming this relief, but most publicans still miss out, little realising how much it is costing them.

Effectively, with proper attention, the taxman could be meeting 15 per cent of your expenditure. And that's got to be worth investigating further.

Martin Wilson and Steven Bone are partners at The Capital Allowances Partnership LLP​