Brewer and Distiller International: A right not a privilege. Capital allowances and R&D tax relief

Date: March 10, 2017

Business owners, including those that own breweries, meet with their accountants every year to discuss ways in which they can mitigate their tax bills and reduce costs. What many don’t realise is that in some cases accountants are missing a trick or two and aren’t as clued up as they should be.

Two of the most overlooked business tax reliefs are capital allowances and Research and Development (R&D) tax credits. Why? Accountants and business owners alike are simply not aware of them. A lot of this boils down to their complexity and the constantly changing legislation surrounding these areas of tax.

The number of business owners that are aware of these two areas of tax relief is truly worrying. Nine in ten brewery owners will be due a capital allowances rebate of some kind, but have no idea, and according to the UK tax authority (HMRCJ less than 1% of potentially eligible UK firms are mak­ing claims for R&D costs.

What are capital allowances?

Capital allowances are basically a form of tax relief available to anyone incurring capital expenditure by buy­ing, building or making adjustments to commercial property, including breweries. In plainer English, they are a way to reduce your tax bill. The tax relief is available on what’s known as the ‘intrinsic fabrication· of a building, e.g. lighting, heating, air conditioning, waste disposal. tire alarms and drain­age systems, electricity cabling and other ’embedded’ features like secu­rity installations and ventilation. All of these can produce a huge tax windfall of thousands or even tens of thousands of pounds for brewery owners.
Take an example. The owner of a brewery based in Yorkshire contacted Catax to carry out a capital allowances audit. Having surveyed the property in detail, we discov­ered £342,105 of unclaimed capital allowances in the intrinsic fabrication of the building, which included extractor fans. external signage and air conditioning installations.
As previously mentioned, because most accountants are unfamiliar with capital allowances and how to identify them, brewery owners themselves are almost always in the dark about the potential sizeable tax rebate that comes from unclaimed capital allow­ances. It’s now more important than ever that brewery owners are aware of capi.tal allowances. The reason for this is that, since 2014, any unclaimed capital allowances must now be iden­tified before or at the point at which a commercial property is bought or sold – or they will be lost forever.

So what’s the process of identifying unused capital allowances? Well, we start by establishing the capital allow­ances history of the property. Firstly, we look at the details of any prior claims made by the accountant. If we feel that unclaimed capital allowances exist then we will carry out an in-depth audit of the entire site.
We then produce a report detail­ing the reasons for making a capital allowances claim on items within the property along with a breakdown of the proposed claim amount. After that, we send the report to the client and their accountant along with guidance on how to submit the claim to HMRC in order to receive their tax benefit.

What is R&D tax relief?

Getting money that you never knew you were entitled to is always going to put a smile on your face. So we’ve told you one way in which you can do this, but there’s another: R&D tax relief.
In contrast to capital allowances, most business owners have heard of R&D. However, they generally think it’s the preserve of pharma compa­nies and other blue chips doing things that everyday businesses don’t do. It’s time to shatter this myth. R&D tax credits are available to businesses in every sector, not just those undertak­ing scientific research.
For example, one client of ours
– Lancaster Brewery – a leading brewer of fine ales in the North West of England, recently approached R&D Tax Solutions to see if the work it had carried out to find a distinct flavour for a new pint was eligible for R&D tax relief. After we carried out a detailed investigation, we quickly identified that the company was in fact eligible as it had attempted to develop new and improved brewing processes in order to deliver fresh recipes.
The recipes included a range
of uniquely flavoured beers using non-standard brewing ingredients such as honey grass, honey, ginger and blueberry. Since this activity was deemed to have advanced knowledge in the brewing field, and carried a de­gree of risk relating to the company’s stable yeast strain and wastage costs, it was eligible for R&D tax relief.
After identifying all the ‘qualify­ing· activities, we built a profile of the costs incurred by the brewery, which came to around £98,500. We then sent all the relevant information to HMRC for assessment. Within a couple of months, the brewery received just under £25,000 of tax relief 125% of the total R&D costs mentioned above) for the 2014 and 2015 tax years com­bined.

Similarly, another leading brewer received more than £30,000 (22% of the total R&D costs] in R&D tax relief for activity it had undertaken to install food grade oxygen to allow for the control of oxygen levels with their beer. The project was largely ‘trial and error’ and was undertaken as a risk to the business owners. The company also developed new recipes to meet consumer demand and created be­spoke equipment to prepare for a new ‘keg· based production line.
Right not privilege
Ultimately, both capital allowances and R&D tax credits are a right and not a privilege. If brewery owners have incurred expenditure or costs buying, building or adjusting their premises, or developing new products, services or systems, then they are eligible for a tax benefit. In both cases, capital allow­ances and R&D tax credits can then be offset against a corporation tax bill or claimed as a cash sum paid back to a company by HMRC.
One final thing: it’s worth pointing out that like most capital allowances firms, we will only charge a fee if
the capital allowances identified are substantial. For example. at Catax we only charge a fee if the unclaimed capital allowances identi­fied amount to over £50,000. We operate on
a ‘No Win, No Fee· basis, and only charge a fee once the tax benefit has been identified and received by the client. This means that there is no risk and no upfront cost for the brewery owner.

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