Maximising relief on capital allowances
Capital allowances take the place of depreciation, allowing the cost of capital assets to be written off against taxable profits. They are given at rates which are prescribed by the Government, and which may encourage ‘green' investment.
The majority of businesses are currently able to claim a 100% Annual Investment Allowance (AIA) on the first £100,000 of expenditure on most types of plant and machinery (except cars). This is quite a high ceiling, but nevertheless it is worth bearing in mind if your business is incurring substantial amounts of qualifying expenditure: potentially accelerating expenditure to prior to 31 March 2012, before this valuable relief is significantly reduced, see below.
In addition to the AIA, there are specific 100% allowances available for some investments, including energy-saving equipment and low-emissions cars. Plant and machinery not qualifying for 100% allowances are generally subject to an annual writing down allowance of 20% on the reducing balance, although there is a reduced rate of 10% for certain categories, including cars with CO2 emissions exceeding 160g/km, long life assets and certain specified integral features of buildings.
In general, a purchase made just before the end of the current accounting year will mean the allowances will usually be available a year earlier than if the purchase was made just after the year end. In the same way, the disposal of an asset may trigger an earlier claim for relief or even an additional charge to tax.
Changes from April 2012
The AIA will be reduced to £25,000 from April 2012, and the annual writing down allowances will also be reduced to 18% and 8% (with special rules for accounting periods which straddle the change).
Please contact Chris Riley on 020 7516 2427 or email criley@littlejohnllp.com for more information on the allowances that may be available to you, and advice on how you may be able to maximise tax relief before the reduction in the Annual Investment Allowance affects your business.
