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Tax change will cost five South West hoteliers more than £3 million

Government plans for a retrospective tax change could threaten survival of some hotels

Leisure and Tourism specialists at one of the South West’s largest accountancy firms have urged a Government re-think on plans for a retrospective tax change that will hit the region’s most progressive hotels.

In preparing a submission to the Chartered Institute of Taxation, Bishop Fleming has studied the impact of the planned tax change on just five of their 100 hotel clients in the South West.

Andy Richens, the firm’s Technical Tax Director, said: “We looked at five hotel clients who have recently invested in renovations. The Government’s plan to phase out long-established 25-year allowances on capital expenditure for hotel buildings will remove almost £13.5 million in allowances from those five hotels, and increase their tax liabilities by more than £3 million.”

“These clients funded their renovation investments through borrowings of £13 million on the basis that the building allowances would be available for 25 years. The Government now plans to end that formula.

“This new threat of retrospective tax changes could make business planning and investment a total gamble”, said Mr Richens.

Head of Bishop Fleming’s Leisure & Tourism team, Will Hanbury, warned that, if the Government does not rethink its plan, the South West could see the loss of crucial hotel businesses.

“This plan for a retrospective destruction of capital allowances, originally designed to encourage investment and improvement, could not have come at a worse time for the hotel industry – such an important component of the South West’s economy”, he added.

“This region has seen the hotel sector facing increasingly fragile times, with dreadful summer weather, a steady decline in the region’s number of hotel-beds, and an increase in interest rates for investment borrowing.

“One of the five hotelier clients included in our study, which incurred borrowings based on the established tax allowances for renovation investments, now questions their ability to continue to invest in the future, which may impact on the 350 employees, and an important contribution to the local economy”, said Bishop Fleming’s Will Hanbury.

Bishop Fleming, which has offices in Bristol, Exeter, Gloucester, Plymouth, Torquay, and Truro, has submitted its report to the Chartered Institute of Taxation for inclusion in a national response to HM Treasury’s consultation on the proposed tax change, announced in Gordon Brown’s final Budget as Chancellor.

Given the widespread impact of the proposed tax change, Bishop Fleming's Tourism & Leisure team have run a series of briefing sessions for the region’s hoteliers and other businesses, in partnership with Davis Langdon Crosher & James – specialist capital allowance valuers.

“Maximising plant and machinery claims in integral fixtures is now crucial, given the threatened withdrawal of hotel building allowances”, said Bishop Fleming’s technical tax director, Andy Richens.