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 link:
HMRC
Budget notice and HMRC
Capital allowances reform |
