And more fun about tax

Panorama has investigated the accounts of the hotel, which was acquired by the Barclays in 1995. It\’s a profitable business, but the hotel has taken advantage of a series of perfectly legal tax reliefs to ensure its corporation tax bill was zero.

Eh? I mean, what?

Taking legal tax reliefs is being naughty now is it?

What gibbering nonsense is this?

Anyone able to get a look at The Ritz;s filed accounts so we can see what they\’re claiming? Might it be something as simple as depreciation on the building?

19 thoughts on “And more fun about tax”

  1. I’m not an accountant, but can they really claim for depreciation on a prime central London property whose value almost certainly hasn’t depreciated (and most probably doubled) over the last 17 years? Or do accountants never play Monopoly?

  2. Why the fuck do you get capital depreciation at all?

    The building might be depreciating, might not be. You’ll find out if you ever try to sell it – which is when the profit/loss on sale should be considered.

    The building will have regular maintenance costs, repairing leaks, rebuilding rooms trashed by rock stars and so on. The repairs are done preventing depreciation, and are direct and quantifiable costs in their own right – which have to be paid out of the income generated by the hotel, which means lower profits. Why do you get depreciation on top of this? It seems to me like double claiming expenses – buy your office PC it’s an expense, then depreciate it 25% a year irrespective of whether or not you replace it after 4 years, then again take the cost when you do replace it.

  3. I don’t actually know about corporate accounts. But if you’re a private landlord you can claim, I think it is, 2% of the value of the building each year as depreciation. Pretty sensible really, as every decade or two you do have to go look at the roof, check the mortar etc.

  4. …..Why the fuck do you get capital depreciation at all?…..

    Because if you didn’t, nobody would invest.

    You cannot claim expenses for something that you then depreciate. It’s either or, with strict rules determining which it is to be.

    …….can they really claim for depreciation on a prime central London property whose value almost certainly hasn’t depreciated (and most probably doubled) over the last 17 years?……

    No doubt the value of the land has doubled, but I doubt the value of the building has. Land is not depreciable, so no worries there.

  5. Just make it simple. Profit taxes are raised on [money in bank at end of year]-[money in bank at beginning of year]. Adjustment is only needed for dividends paid out and consideration of losses in previous years.

    This has the additional benefit that we can release millions of expensive and unproductive accountants into the wider economy to do something useful.

  6. It’s naughty when right-wing media magnates do it.

    Obviously when The Guardian or BBC employees take advantage of whatever legal tax-reducing schemes are available, it’s all for the greater good.

  7. James V

    “Profit taxes are raised on [money in bank at end of year]-[money in bank at beginning of year].”

    Yeah right…

    1) that’s a cash flow tax and not a profit tax. Actually it’s not even that as it’s a tax on a stock and not on a flow. It’s like telling someone that they should be taxed on whatever they have in their account on the evening of the payday and not on the day after paying their mortgages…

    2) so when you increase your debt or when you raise more equity you should pay more tax?

  8. Has the Ritz paid its business rates? I’m guessing that they have, in full, with no avoidance. To me the solution (for Starbucks et al as well) is obvious – eliminate profit/income taxes and increase land taxes.

  9. JamesV>

    “buy your office PC it’s an expense, then depreciate it 25% a year”

    No, as people have already said it’s an either-or thing. If your PC has a usable life of four years and zero value afterwards, then you could reasonably say it has depreciated by 25% a year and deduct that from that year’s profits.

    A hotel does not, for example, do a full refurbishment every year. They might do so only once every twenty years. That cost can be spread over twenty years – that is, depreciated in accountant-speak.

  10. I have not yet looked at Ritz accounts but I have repeatedly seen depreciation charge for buildings which is over 50 years (2%) or the term of the lease if that is shorter. That is only on the buildings,freehold land is not depreciated.

  11. You don’t get depreciation as an expense for tax purposes.

    You can get capital allowances for some of the costs relating to plan and machinery, but not normally for the building. The stuff you can claim is at 8% or 18% per annum, so your tax allowances on plant might be bigger than the accounts depreciation on the whole building. But only in the short term – the deferred tax wil still accrue.

    You’d get a tax deduction for repairs, but you would never get a double deduction for them – if you claim them as an expense, then you can’t get capital allowances (expenses and capital are mutually exclusive here – this is explicit in the legislation). Depreciation, as I say, isn’t tax-deductible anyway.

  12. Tim @ #3: if you’re a private landlord letting out furnished accommodation, you can claim 10% of the net rent as “wear and tear”. Is that what you’re thinking of?

    It’s for wear and tear on furniture, not the building: it’s a simplified version of capital allowances. Or you can claim the cost of replacing the furniture instead, which is even simpler.

  13. Just looked at the accounts for Ritz Hotel (London) Limited. It makes accounting and tax profit (per 2011 & 2010 accounts). There’s no tax because of group relief being claimed for nil consideration from losss makers in the UK group.

  14. “Profit taxes are raised on [money in bank at end of year]-[money in bank at beginning of year].”

    Are you kidding? No-one in business would ever pay tax again. Everyone would have huge amounts of empty buildings, and non utilised equipment, but no tax would be payable, above whatever you wanted to take out of the business as private income.

    I’m all in favour. When does it start?

  15. “Profit taxes are raised on [money in bank at end of year]-[money in bank at beginning of year].”

    An awful lot of companies run on bank loans. At the year end, there will be a minimal amount of cash, simply because it is generally more efficient to offset it against the bank loans. So they would never pay tax in your jurisdiction.

  16. @Emil, no it is distinctly not a flow tax. It’s what you have now, minus what you had then – that difference being the real cash money .you earned or lost over the course of the year. Year-end effects due to what bills you did or didn’t pay or invoices that did or did not pay would even out in the longer term.

    And your debts would of course detract from the positive balance you have in your current account.

    Possibly some disadvantage in the non-taxation of appreciating assets or offsetting of depreciating assets, but the businessmen are in it for a profit, and you would tax appreciation as it was realised (and depreciation as the costs for de-dedepreiating stuff were incurred). I commend it to the house.

    On the depreciation/expenses issue, thanks for the clarification, I am duly corrected.

  17. “We know no spectacle so ridiculous as the British public in one of its periodical fits of morality.”

    Well, not so much the British public as a small group of self-important meedja middle brows, but the point remains.

  18. JamesV

    Actually: what you have now is a flow tax with the flow being a profit flow and not a cash flow. You are proposing a tax on a stock which is (as several people have pointed out) a really bad idea and very easy to game.

    The rest of your comment I don’t understand. What is de-depreciation?

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