In the Budget on Wednesday 21 March the Chancellor announced a reform of the capital allowances regime, which is likely to have a significant impact on the hotel industry - and will certainly outweigh the drop in the headline rate of corporation tax to 28%.

The key changes include:

• Phased withdrawal of hotel buildings allowances over the next four years.  No draft legislation is available as yet, however, it has been confirmed that there will be a straight line reduction in the availability of hotel building allowances ultimately expiring in 2011;
• Reduction in the rate of allowances for building related fixtures from 25% to 10% from April 2008 subject to consultation;
• Reduction in the rate of allowances for plant and machinery from 25% to 20% from April 2008, and
• Increase in rate of allowances for long life assets from 6% to 10% from April 2008.

Commenting, Karen Potts, Hospitality Partner at Deloitte said: “The rationale for the above reforms is to remove outdated and unjustified distortions in the tax system, but they will penalise property owners and occupiers that have based investment decisions on the availability of these allowances. The hotel sector is likely to be hard-hit as the industry investment relies heavily on the availability of these allowances, as well as gaining relief from attractive rates of tax depreciation on plant and machinery assets.

“Hoteliers should now look to identify and maximise the plant and machinery assets allowances that may have been ignored in favour of claiming hotel building allowances” said Potts.

Ends

About Deloitte
In this press release references to Deloitte are references to Deloitte & Touche LLP, which is among the country’s leading professional services firms.  Deloitte & Touche LLP is the United Kingdom member firm of Deloitte Touche Tohmatsu (‘DTT’), a Swiss Verein whose member firms are separate and independent legal entities. Neither DTT nor any of its member firms has any liability for each other’s acts or omissions. Services are provided by member firms or their subsidiaries and not by DTT. Deloitte & Touche LLP is authorised and regulated by the Financial Services Authority.

The information contained in this press release is correct at the time of going to press.