Tax & Accounting News
Take a look at capital allowances
03/01/2008
We would urge 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 goes into a “pool” of spending on
plant and machinery that receives a “writing down” allowance
- 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.”
For more information, call us on 020 8446 9000
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