Harris Lipman News

Take a Look at Capital Allowances, Say Accountants

20/11/2007

North London-based chartered accountants Harris Lipman are urging businesses to review their position on capital allowances before changes are introduced next April.

Capital allowances are tax allowances that recognise the depreciation of assets - such as buildings, plant and machinery - which businesses use to offset the cost of such items against taxable profits.

Changes announced in the March Budget mean that from 6 April 2008, all businesses, of any size or structure, will be able to claim a 100 per cent annual investment allowance (AIA) on the first £50,000 of expenditure on plant and machinery, except cars, in the year the money was spent. This replaces first year allowances of 50 per cent for small businesses, with up to 50 employees and 40 per cent for medium-sized firms, with up to 250 employees.

Expenditure above this is carried forward into a “pool” of spending on plant and machinery that receives a “writing down” allowance in future years - ongoing tax relief of 20 per cent per year, reduced from 25 per cent in the Budget.  Barry Lewis, of Harris Lipman, said: “Our experience shows that many businesses lose out each year as a direct result of unclaimed capital allowances - not surprising, as the capital allowances rules are very complex. In the light of these latest changes, any business would be wise to seek professional advice to ensure that it uses capital allowances to its best advantage

“For example, the new AIA could encourage small businesses to invest more in plant and machinery, as they will be able to claim 100 per cent relief up to the £50,000 limit, rather than the current 50 per cent. Medium-sized businesses will need to spend more than £125,000 before they are worse off under the new regime - £50,000 with 100 per cent relief is the equivalent of the old 40 per cent first year allowance on £125,000.

“Timing of expenditure will be important, however, and if your business is considering spending up to £100,000 on plant and machinery during the 2008-09 tax year, it might be wise to look at ways to carry half this into the following year, to achieve two AIAs.

“We would advise any business to review their options on capital allowances with a qualified professional, such as a chartered accountant, who will also be able to advice on related issues, such as the impact of capital purchases on cash flow and financing investment.”

Form more information contact Harris Lipman on 020 8446 9000

 

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