Latest News

December 2011

Capital Allowance Changes

If you are thinking about making a capital purchase, such as equipment or machinery, then now is the time to seek advice from your accountant as the timing of such an investment could have a significant effect on your tax bills due to changes on the way.

Tax relief on asset purchases are called capital allowances by the tax man. At the moment, the first £100,000 spent by a business in a year can be completely offset against that year’s profits. That relief is called the annual investment allowance. Any spend over that is spread over subsequent years using what are called writing down allowances.

As part of the Government’s efforts to increase the tax paid by business, from 31 March 2012 for companies and 5 April 2012 for unincorporated businesses, the rules surrounding capital allowances are set to change significantly, with the annual investment allowance (AIA) reducing from the current £100,000 to just £25,000. In addition, changes in writing down allowances (WDA) are also set to come into force.

Whilst the chancellor argues that the majority of businesses investing in a capital purchase will still be covered by the AIA, there will still be a large number affected by the change.

Businesses have historically bought plant and machinery shortly before the end of an accounting period rather than the beginning of the next, to ensure that capital allowances can be claimed in that period rather than the next, bringing the relief forward by a year.

General thinking would suggest that expenditure should be made before the end of next March rather than just after, but in some cases it may make sense to delay it, for particular reasons.  Accounting periods that straddle the date of change need particular thought.

So the message is that all businesses considering investing in plant and machinery before the end of next year should contact their accountant to discuss the timing of the tax effects of that investment to help them decide on exactly when to place their order.

If you would like to discuss this further please contact us today.