Read the small print

If you own a pub or are a tenant, how clear are you on all of the changes announced in Gordon Brown's Budget? We have all read the headline-grabbing stories on changing tax rates for individuals and companies, but there are plenty more issues to be aware of.

For example, if you are planning on buying or refurbishing a pub in the near future, changes in the tax incentives that are currently available will impact on your cashflow.

Although Brown didn't provide any help in reducing the burden of energy cost, he made it clear that greener buildings would benefit from his reforms. By expanding the scope of the 100 per cent tax relief available on energy efficient plant and machinery you will not only have lower energy bills but also a useful tax break.

But unfortunately the expansion of some tax reliefs has been coupled with the reduction and, in some cases, complete scrapping of others.

These tax breaks are not new by any means; capital allowances in one form or another have been around since after the Second World War. What makes this latest Budget so significant, though, are the extent of the changes Brown has brought in (see box).

With plant and machinery allowances, Brown has not reduced the amount of tax relief you can get; he has just changed the speed by which you can use them to reduce your tax burden. What you can be sure of is that if you invest in energy efficient equipment you should be better off once you have paid your tax bill.

Winners and losers

So who has won or lost in this shake up of plant and machinery allowances?

The losers appear to be those who own a large number of units and incur significant amounts on annual refurbishments. It will take them far longer to get tax relief out unless they radically change the specification of the equipment that is being installed in favour of energy efficient assets.

If a large scale owner incurs £1m of expenditure, of which £650,000 is claimable, after five years they will only have had 61 per cent of the benefit compared to the outgoing system.

At face value, the winners seem to be those publicans with smaller numbers of units who can get a great proportion of their expenditure back in the first year. However, the devil is in the detail, which will become apparent over the coming months.

There is good news if you are bringing a property back into use that has been empty for a year or more in a designated disadvantaged area. The Business Premises Renovation Allowance provides 100 per cent tax relief in the first year and will finally come into effect on April 11, 2007.

So if the £100,000 refurbishment described above met the criteria for the Business Premises Renovation Allowance, you would be able to claim tax relief on all of this expenditure.

One major incentive that is disappearing relates to hotel property. So if you are contemplating expanding your business to offer letting bedrooms, it is worth noting that you can no longer rely on hotel allowances, as they will be phased out over the next four years.

This will impact directly on the cashflow of property investors and owner occupiers alike. This is the loss of a significant tax saving benefit for the leisure and hospitality sector as a whole.

So it would be worth speaking to your accountant and capital allowances advisor to establish just how these changes will have an impact on you and your operation.

Here is how it might work

You spend £100,000 on a major refurbishment in preparation for the smoking ban and £50,000 is for equipment that qualifies for capital allowances. You are currently able to use a percentage of this qualifying expenditure each year to reduce how much tax you pay. From next year the percentage you can use each year will reduce.

However, the new Annual Investment Allowance that also comes in next year will allow you to get more of this tax relief upfront. You will be able to claim up to £50,000 of expenditure on plant and machinery all in the one year. This will mean, if you have a profit of £50,000 in the 2008-09 financial year you will pay no tax in that year.

It is unclear at this stage whether this will be available to all organisations as the detailed design and scope of this allowance will be the subject of consultation.

The only criteria in the Budget Press Notices are that the allowance will be available to "all businesses that are investing for growth".

David Henry is an associate at Davis Langdon Crosher & James, the property tax and finance arm of leading international project and cost consultancy Davis Langdon.​