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Chartered Accountants | Business Development Specialists | Registered Auditors.
Abbey House, 342 Regents Park Road, Finchley, Barnet, London, N3 2LJ
(Also offices in Milton Keynes, Buckinghamshire)
Growing your business is our business
If you are planning to buy or lease some new business equipment over the next year, you should consider the changes to the tax reliefs known as capital allowances, which are due to take effect from April 2008.
All items that qualify as plant or machinery, including fixtures in buildings and vans, will be eligible for the new Annual Investment Allowance (AIA) of £50,000 if purchased on or after 1 April 2008 for companies, and from 6 April 2008 for unincorporated businesses. The allowance will give immediate tax relief for the cost of equipment within the annual limit of £50,000, which is much better than the spreading of tax relief over several years, which applies to equipment purchased before April 2008.
Where your accounting year does not start on 1 April or 6 April the first AIA limit will be proportionally reduced. If a company year runs from 1 January 2008 to 31 December 2008 it will get nine months' worth of the AIA (£37,500) for purchases made between 1 April 2008 and 31 December 2008. Purchases made before 1 April 2008 will qualify for the existing First Year Allowances of 50% for small businesses and 40% for medium sized businesses.
The writing down allowances for plant and machinery are being reduced from 25% to 20% and this will affect all equipment that has already been purchased and not fully relieved for tax purposes. This means it will take longer to achieve full tax relief for any equipment purchased before 1 or 6 April 2008, or bought after that date if it is not covered by the AIA limit of £50,000 per year. This adds some complications, so we will need to do some calculations to see if you should purchase your new equipment before or after 1 or 6 April 2008, or before your current year end. Please talk to us before you buy.
Another change will affect the tax deduction for the cost of certain fixtures in buildings (referred to as integral fixtures). Currently many such fixtures qualify for a 25% writing down allowance but for purchases on or after 1 or 6 April 2008 the rate of the allowance will only be 10% (if not covered by the AIA). We don’t know exactly which assets will be classified as integral fixtures, but if you are considering buying a building containing a lot of fixtures, it may be worthwhile sealing the deal before 1 or 6 April 2008.
If you lease equipment you can claim the capital allowances on the effective capital cost of the asset if the agreement is a hire purchase contract. Otherwise the capital allowances will normally be claimed by the lessor, unless special rules apply. If you lease a car the lease rentals you can set against tax are restricted where the car costs over £12,000.
If you are planning to incur capital expenditure or to take on a lease of plant over the next few months please talk to us before you do so. We can help you with the calculations.
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We offer of all four of our quarterly news editions (AND the Budget Edition) in printed form to all our clients free of charge. Call us on 0800 146134 or contact us to subscribe.