Garden centres can benefit from additional tax relief on purchase and construction expenditure.
There are around 2,500 garden centres in the UK. Most are full scale “leisure destinations” with some evolving from local nurseries to others being newly constructed. Not only do they provide a range of plants and garden furnishings, but additional facilities such as restaurants, cafes, grocers and concessions.
As part of this growth, these garden centres often incur significant capital expenditure on new construction, fit out, refurbishment and extension works.
Some garden centre owners or operators will be aware that tax relief is available on capital expenditure through capital allowances. Capital allowances are available on items of qualifying Plant and Machinery (P&M), such as fire alarms, security systems, carpet, electrical lighting and power, heating and ventilation, furnishing and many other assets.
Accountants and Tax Advisors Approach To Claiming Allowances,
Accountants and tax advisors will typically identify obvious qualifying items of P&M such as furnishings, display fixtures and catering equipment, where there are invoices. However, maximising and unlocking additional capital allowances without expert knowledge may prove difficult.
A specialist will add value due to their ability to breakdown limited construction information and defend the treatment of assets considered to be trade specific. For instance, when a construction project is undertaken it is usually invoiced in stages. The accountants will receive invoices for the building contractors payments, these will merely read, “building works stage 1 payment”, the accountant would usually categorise this as ‘land and building’ expenditure in the fixed assets and ineligible for tax deduction in the ‘tax computations’. This is due to the limited detail in the invoices and lack of construction knowledge.
Whereas a specialist with a combined expertise in surveying and tax will be able to distinguish and segregate out the qualifying P&M and repairs expenditure.
Garden Centre Specific Items
There are less apparent qualifying items of P&M specific to garden centres, which require surveying cost assessment to maximise allowances, these include:
- Glasshouses (see below)
- Polytunnels (see below)
- Irrigation systems
- Trade drainage
- Builders work in connection with electrical and mechanical services
- Thermal insulation within existing buildings
- Incidental works such as a hoist shaft within existing buildings
- Electrical gears to automated doors
- Splashback to catering and sanitary fittings
- Plywood support to partitioning in association with display fittings
In the case of Grays v Seymours Garden Centre (Horticulture) a glasshouse provided the function of nurturing and preserving the plants displayed for sale. It was held not to be P&M as it was deemed to be “premises” in which, rather than “plant” with which, the business was carried on.
In view of this, most glasshouses which merely provide shelter are considered to be buildings or structures. In contrast HMRC do accept a glasshouse to be P&M where the “glasshouse and its attendant machinery are inter-dependent and form a single entity which functions as P&M in a grower’s business”, and there are further conditions which also need to be satisfied. If it is not a single entity then allowances can be claimed on the plant element rather than the structure.
A polytunnel is essentially a metal framed structure covered in polythene. It can vary from providing shelter to growing plants, this is determined by how it is used in the business. Agreeing a tax deduction for polytunnels, not only is it based on whether they are moveable, but at the same time it needs to be deemed apparatus with which crops are grown by its grower. This often involves negotiations with HMRC and supporting evidence to be provided.
When undertaking a refurbishment, there may be substantial repair works. These are rarely segregated clearly in the building contractors invoices, as such they are usually capitalised in the accounts with no tax relief. A specialist will be able to carefully identify and defend the treatment of expenditure on redecoration, like for like replacement of assets and remedial works, excluding improvement expenditure. If repairs expenditure are identified and the appropriate accounting treatment is considered at an early stage, tax relief may be obtained.
Acquiring Existing Properties (Asset or Share Acquisitions)
Garden centres are being sold either in the form of asset or share sales. An ‘asset sale’ is where the trade, assets including contracts and goodwill of the business are being acquired from a seller. A ‘share sale’ is where the shares in a company are being acquired from its shareholders.
In either transaction the largest single fixed asset will often be the freehold or leasehold property. In an asset sale the property price will be stated in the purchase contract and in some instances an amount attributed to moveable assets (a ‘contract allocation’). In a share sale the original previous purchase price paid for its acquisition or construction cost incurred is the starting point for a capital allowances claim.
A specialist has the expertise to quantify and allocate an element of the purchase price of the property to qualifying P&M. Even where there may be a tax election in place there may still be scope for additional allowances. It is essential to engage a specialist to provide appropriate contract wording and effectively value the allowances.
Whether you are a landlord or a tenant, there could be scope to allocate a proportion of the landlord contribution paid to capital allowances. Early specialist advice and wording for inclusion in the agreement to lease could better protect your capital allowances position.
Enhanced Capital Allowances (ECA)
There may be scope for 100% allowances on energy saving technologies such as lighting, air conditioning, hand dryers, fridges and efficient water saving technologies such as sanitary fittings, greywater systems, rainwater harvesting and water management equipment. The ECA scheme enables businesses investing in certain energy saving P&M specified on the Energy Technology List (ETL) or Water Technology List (WTL) to write off the full cost of the compliant assets against their taxable profits in the first year providing 100% tax relief. These assets would otherwise attract the lower writing down allowance at 8% per annum. Early involvement will enable specialists to liaise with the construction project team and maximise on an ECA claim.
Generally, Lovell Consulting is able to identify significantly more allowances when engaged at early stage of a capital project. For fit out or refurbishment works, up to 90% of the expenditure may attract allowances. For existing property acquisitions and new constructions, typically there may be up to 35% of the purchase price or construction expenditure attracting allowances.