Sarah Wilson-Nolan, tax manager at haysmacintyre, reveals how indies can make their next refit a profitable success
To stay ahead of the curve many fashion brand owners and retailers will refurbish their stores at some point. This could be a total brand refresh or simply a yearly interiors update, but either way, these initiatives involve serious financial commitment and consideration. Monitoring the availability of capital allowances as well as the project’s impact on cash flow is paramount. Understanding your finances and possible savings will help in successfully minimising any potential risks to the bottom line while your refurb is underway.
Capital allowances are sums of money that a business can deduct from the overall corporate or income tax on its profits. They are a useful tool in reducing corporation tax liability, particularly following the purchase of corporate use assets, such as property. Unfortunately, many miss the opportunity to make the most of capital allowances, simply because of poor bookkeeping.
Maximising your capital allowance claim has huge potential benefits. It is key to ensure you keep detailed breakdowns of everything that you spend throughout a refurbishment project, which will also allow you to monitor your cashflow in real time.
Annual investment allowances (AIA) are available to companies in the year in which qualifying assets are purchased and allows for a deduction of 100 per cent of the cost of the asset against the taxable profit. The level of AIA can fluctuate, so timing the purchase of any assets is important when maximising these allowances. Assets such as fixtures, fittings and furnishings all qualifying for relief and any expenditure not covered by AIA is entitled to a yearly writing down allowance at 18 per cent or 8 per cent. Energy saving or eco-friendly assets also qualify for a 100 per cent deduction against taxable profit in the purchase year. So when planning a significant refurbishment, it is definitely worthwhile having professional advisors on board, who can help to maximise a capital allowances claim and any other tax benefits.
Monitoring cash flow is crucial when undergoing a shop refurbishment. Setting out a clear budget – and sticking to it – is a sure-fire way to avoid any unexpected hiccups. It is also sensible to allow for any overspend by thoroughly planning costings well in advance. It is worth remembering that any debt repayments will also need to be factored into initial cash flow plans, so be sure to keep an eye out for any repayment charges.
Make sure you also consider the pay-back period for a shop refurbishment and work out how quickly the company will make back the money spent. For those planning a complete store makeover, costs associated with a loss of business during construction work, as well as any equipment hire charges, will need to be considered before the project starts.
Additionally, it is a good idea to track store footfall in the early days following refurbishment, to monitor customer numbers, average spends, wastage and staff efficiency. Indicators such as these will help to paint a picture, soon after the builders leave, as to whether the venture will be successful.
Ultimately, when refurbishing your shop, it is key to plan, plan, and plan again. Ensuring you not only keep on top of your finances and cash flow, but also do your research into exactly what tax benefits you are applicable for, will pay off down the line – after all these allowances are in place to ensure businesses thrive – so make the most of them.