If you are planning Capital Expenditure in your business in excess of £25,000 then please read on, as you should consider incurring the expenditure before 31st March to obtain tax relief sooner rather than a lot later.
If you are planning to spend money on plant and machinery, equipment, office furniture, computers, vans, or even certain kinds of thermal insulation and integral features of your business building, then timing is all important.
Currently Capital Expenditure up to £100,000 on relevant items qualifies for 100% Annual Investment Allowances (AIA). This means you save the tax on the expenditure ‘immediately’ in the year of your Accounts in which the items are acquired. From 1st April 2012 that limit is reducing dramatically to £25,000.
So, for anyone with a year end of 31st March 2012, if you are planning to spend more than £25,000 on such capital items we would urge you to consider doing so before 31st March 2012 to get the most tax relief as soon as possible. If you incur the expense after 31st March you will wait several years to get the tax relief based on the usual writing down allowance rules at a maximum of 18% per annum of the capital expended.
What if your year end is not 31st March 2012? The rules are more complicated and you could lose out if you do not incur the expenditure before 31st March.
For example, if your year end is 30th June 2012 the maximum expenditure which obtains that 100% relief is based on an apportionment of the £100,000 limit and the £25,000 limit:
But beware the catch and the importance of 31st March date. In the above example you have a maximum of £81,250. What if you have spent nothing before 31st March and you acquire assets worth £50,000 in April?
Well the catch is the timing. You will only get £6,250 relieved at 100% with the balance of £43,750 spread over the next 10 years or more with 18% (£7,875) being relieved in the first year.
If you incurred the £50,000 in March you would obtain relief on the full amount as it is less than £75,000 up to 31st March. So think about your Capital Expenditure plans.
If you would like to know more please be certain to contact us.
For more details please click on the HM Treasury link