Time barred?
In 2000, my client purchased an established hotel which had been constructed prior to 12 April 1978 and during the first 18 months of ownership added an extension incorporating:
Time barred?
In 2000, my client purchased an established hotel which had been constructed prior to 12 April 1978 and during the first 18 months of ownership added an extension incorporating:
- a bar and dining room; and
- a kitchen and cellar.
I duly claimed hotel buildings allowance on that improvement expenditure, on the grounds that the hotel was a 'qualifying hotel' which consisted of ten letting bedrooms.
My client is now the subject of an Inland Revenue enquiry into a subsequent year's accounts and one point at issue is that the Inspector is challenging my hotel buildings allowance claim. He is suggesting that as the original hotel building was constructed prior to April 1978, the expenditure on the extension built in 2000 and 2001 does not qualify for the allowance.
Under the industrial buildings allowance legislation, each block of expenditure has to be regarded independently and I therefore feel that the claim is valid.
However, the inference being made by the Inspector is that, because the hotel itself was built prior to the introduction of the legislation, the subsequent extension cannot qualify on its own merit.
Readers' advice and suggestions would be appreciated to defend my claim, please.
(Query T16,572) — NB.
NB needs to stick to his guns with this one. Although he does not seem entirely sure of the Revenue's reasons for denying his client's claim for industrial building allowance, he states that this seems to be that because the hotel was constructed prior to the introduction of the 'qualifying hotel' rules in 12 April 1978, the subsequent extension cannot qualify on its own merit. This would seem to be another example of an inexperienced Inspector 'trying it on', and any such claim should be strenuously resisted.
The general position is that expenditure on the construction of a hotel is not treated as being eligible for industrial buildings allowances unless it is incurred after 11 April 1978 in respect of a 'qualifying hotel' as defined by CAA 2001, s 279.
CAA 2001, Sch 3 para 58 contains the rule that s 279 does not apply if the expenditure on the construction of the building was incurred before 12 April 1978. It is the date the expenditure in question which is being claimed that is relevant, not the date the original building was constructed.
Tolley's Capital Allowances 2004-05 illustrates this in paragraph 4.30:
'Where a hotel has been extended after 11 April 1978 and is later the subject of a balancing event it will be important to apportion sale, etc., proceeds by reference to expenditure which qualified for allowances and that which did not.'
Again, Example 5 in paragraph 4.34 describes a case similar to NB's. An hotel was originally constructed in 1968 with an extension built in 1992. The hotel is a qualifying hotel (all conditions in s 279 are met) and so the extension qualifies for writing down allowances.
NB is advised to make these points in any reply to the Inspector. If this is indeed the cause of the Inspector's complaint and progress is not made, then NB should request that the matter is referred to a senior Inspector, when common sense should prevail.
