Changes
Ahead for Capital Allowances
As you are no doubt aware the system of tax reliefs
on expenditure on equipment in your business is
a complex one. Broadly when you buy a piece of
equipment to use in your business you normally
cannot set the full cost against that year’s
profits, unless the value of the item is quite
small, or a special tax relief applies. The cost
of more expensive items is written off against
profits over a number of years, using the capital
allowances system.
For expenditure incurred on or after 1 April 2008
for companies or 6 April 2008 for unincorporated
businesses, it is proposed that up to £50,000
spent on equipment in one year by any business
will be set-off in full against the profits for
that year. This allowance should cover most items
of equipment purchased by smaller businesses, although
cars will not be included in this total. Where
the expenditure on equipment exceeds £50,000
in one year, the excess will be written off at
a rate of 20% per year rather than the current
25%.
Up until April 2008 the old system of capital
allowances largely remains in place, and small
businesses can claim a 50% first year allowance
(40% for medium sized businesses) for the cost
of new equipment purchased before 1 April 2008
by companies or before 6 April 2008 by unincorporated
businesses.
Currently where equipment fixed in a building
is used for your business, after the initial claim
of first year allowances at either 50% or 40% depending
on the size of your business, you may be able to
claim 25% of the remaining costs in subsequent
years against profits. This will be reduced to
10% per year on new expenditure from 1 or 6 April
2008 where the expenditure is not covered by the £50,000
annual allowance.
The tax savings which can be made by reducing
your business’ profits are potentially high.
Timing is important so please contact us if you
are planning additional expenditure on equipment
or premises. This is a summary of the proposals
and the transitional rules can be complex.
Internet Links:
HMRC
Budget notice and HMRC
Capital allowances reform
|
