Rico and Seve's Story
Rico and Seve are a father and son partnership operating a much-loved Italian restaurant. The restaurant first opened its doors when Rico purchased an existing business in the mid 1990’s with Seve joining the business in 2015.
Why they approached us
Having come into the business with a view to expanding, it took Seve a further 3 years to convince his father that a comprehensive refurbishment was required.
Seve spoke to his accountant who in turn asked us to speak to the father and son partnership about capital allowances and how this valuable tax relief would help them reduce the actual cost of the refurbishment.
How we helped
We met with Rico and his son Seve to establish what work they plan to undertake. In addition to this we thought it would be prudent to investigate what capital allowances had been claimed in the past.
Our discussions revealed that Rico purchased the business and property for £625,000 plus SDLT and fees. The previous accountant split the costs £100,000 for goodwill, £25,000 for furniture, fittings and equipment and £500,000 towards the land & building. In 2005 Rico then spent just over £250,000 on the fitout of a previously unused floor of the restaurant. The current refurbishment was estimated at £500,000. Other than the £25,000 for furniture, fittings and equipment and a further £50,000 for furniture, fittings and equipment procured in 2005 no capital allowances had ever been identified or claimed.
We explained to Rico and Seve that they still have the ability to claim capital allowances on an apportionment of the land & building purchase price paid in the mid 1990’s and also on the qualifying expenditure incurred during the 2005 fit out. Rico was concerned about the value of the exercise given that the current condition of the property was at best described as “well used.” However, he was reassured that the allowances would be valued based on when they were first installed.
Following the assessment of their needs, we agreed in the first instance to undertake a valuation of the capital allowances for both the original purchase and the 2005 refurbishment. In total, this identified capital allowances of just over £250,000, all which were in the form of plant & machinery allowances.
An amendment was made to the previous self-assessment and capital allowances were claimed for the current year to reduce their tax payable. The immediate savings were just over £32,000 and this left a further £68,000 of tax relief for the partnership for future years.
In addition to this we subsequently reviewed the latest refurbishment which resulted in just over £325,000 of additional capital allowances being identified. The taxpayer was able to claim £200,000 of these allowances as part of their annual investment allowance and therefore the first-year tax relief was over £45,000. Combined, the review provided capital allowances totalling £575,000 and £250,000 of this may not have been available if the taxpayer came to us after the refurbishment work had been carried out. Rico and Seve were delighted with the outcome and continue to serve the best Italian cuisine in their newly refurbished restaurant.
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