A strange question: can you afford not to spend £500,000? No, this is not about how many stocks and shares you can buy, but rather the limit for which businesses can claim a full 100% tax relief for capital expenditure, basically for buying plant and machinery.
What has, in recent years, been a highly advantageous tax break is about to be reduced significantly in January of next year.
As a rule, HMRC do not allow capital expenditure as a deduction against profits but, instead, give capital allowances. Often, the rates allowed are quite low, eg. 18% or even 8%, on a reducing balance basis with the consequence that relief can end up being spread over decades rather than years.
Whilst some items of equipment qualify for special rates of allowances, 100% if they are energy efficient, unfortunately long life assets and integral features of business premises are relegated to the 8% band, even though they may be crucial to the effective running of the trade.
Fortunately, the Chancellor wanted to stimulate businesses and introduced a £250,000pa ceiling for the Annual Investment Allowance (AIA) from January 2013 within which 100% relief may be claimed even if the items in question only normally qualify for the 18% or 8% relief. Whilst he extended this allowance in April 2014 to £500,000pa, it is currently set to reduce to £25,000pa from 1 January 2016, so you will need to act fast.
You should be aware this particular relief does not apply to motor cars (lorries and vans are acceptable), but you can instead buy an electric or hybrid car with a CO2 rating of below 95gm/km and still obtain a 100% allowance.
If you are not to miss out on this golden opportunity you need to get your skates on and acquire or upgrade your business equipment before 31 December 2015. Special rules will apply if the equipment has not been installed or paid for by 31 December, so please check with your usual UHY adviser who can help. On the 15 July we will be hosting a seminar 'AIA, can you afford not to spend £500,000?', in London. Please see our website for further details and registration.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
