How to finance the refit

Experience shows that there is no doubt that a well planned and attractive fit, enhances the business, and increases trade. While many clients flinch at the thought of £30,000 to £60,000 Ð a fairly typical amount Ð looked at over a 10-15 year life then the value for money is actually very good. So you have made the decision to bring the practice into the 21st century, but how are you going to fund the project? The obvious options are cash, bank loan, some kind of business loan, lease purchase or lease rental. Certainly the practice refit enhances the value of the business; therefore there is a strong argument that the refit is well used as an asset on the balance sheet. Therefore cash, loan or purchase will naturally give you this effect. You will then depreciate the cost of the work, and generally four years will write off 70 per cent or so and eight years the total. But in truth it is not that straightforward. Firstly, the refit is going to attract VAT, and potentially lots of it. Because the refit encompasses both retail, dispensing and clinical elements, it will fall under the appointment rule of de minimis, and therefore load up your exempt 'pot'. To remind you, you are only allowed to claim back up to £625 a month of exempt VAT. So you actually do not have to spend very much to exceed this sum. If you break the £625 mark, you then are supposed to sit out the rest of your VAT year. Aggregate at the VAT year end up to £7,500 (12 x £625) and see if you then fall under the annual ceiling. If you do, then you can claim back a lump sum. If you do not, it is all lost; up to and over the sum. So getting your VAT wrong is an expensive mistake, at least a £7,500 loss! Also included in refits are areas that might legitimately be classed as repairs and dilapidations, thus 100 per cent same tax year offset. However, the Revenue has seen it all before and looks at these things very closely. In some cases the freehold may be owned, either by yourselves, or as another business name. Again this is a potential bolt hole for VAT. Another consideration is your trading style. Are you a partnership, sole trader or limited? These affect both the way your accounts might be constructed and your tax gains. The most popular option on the project is often leasing, because it spreads the VAT across the term of the contract. It is also highly tax efficient, but it does not give you the asset value, so you are swapping assets for tax and VAT gain. The real answer to a good refit, like most things in business, starts with planning.