What goes up must come down
Hardly anything ever stays the same in the tax world, and that is particularly true for capital allowances.
Only last year the annual investment allowance (AIA) limit was increased from £50,000 to £100,000, but next April it will be reduced to just £25,000. Also, the rate of writing down allowance for expenditure not qualifying for the AIA will go down from 20% to 18%. For special rate expenditure, such as features integral to a building, the rate will fall from 10% to 8%.
What can you do if your expenditure exceeds £25,000?
- Bring forward planned capital expenditure to benefit from the £100,000 limit. However, be careful if your year end is not 31 March (company) or 5 April (unincorporated business), as the limit will be time apportioned.
- Buy equipment that is 100% energy efficient, as this qualifies for a 100% deduction.
- Maximise the benefit of the £25,000 limit – for example, by spending £25,000 each year rather than £50,000 one year and nothing the next.
- Identify expenditure with a life of less than two years, since this can normally be deducted in calculating taxable profits.
- Identify expenditure that will fall in value and will be sold or scrapped within a few years. Although it has no immediate benefit, an election can be made so that the full loss in value is given over the life of the asset.
- Consider leasing assets rather than buying them, as leasing costs can normally be deducted in calculating taxable profits. However, tax is only one consideration when making such a decision.
There are no longer any allowances for industrial buildings. You should therefore identify any integral features included in the cost that qualify as plant and machinery. Examples of qualifying items include heating and ventilation systems, cookers, washing machines, refrigeration and sanitary ware and alarm systems.
However, unless such items fall within your AIA limit, writing down allowances will only be given at the special rate. If you are buying a second-hand building you can make an election to determine how much of the sale price relates to integral features.
Please get in touch if you wish to discuss your capital expenditure plans.