Businesses can claim tax allowances on certain capital asset purchases. That’s great news ….. but is now the right time to buy that new asset for your business?
If you buy an asset (car, tools, plant, and machinery) for your business you cannot normally deduct this expenditure on that asset from your trading profits; however you are able to claim a yearly allowance which you may be able to claim against your profits for that expenditure. This process ensures that you obtain tax relief against the depreciation in value of the assets that your business buys and owns.
The business can write off a proportion of the cost of the assets each year for a set term against the taxable income (where the set term is usually linked to the expected useful life of the asset). The Depreciation Register prepared by your accountant will give you the set terms and the depreciation values.
So why is the clock ticking?
The tax allowance limits available are set by the Government and can be subject to change at any time as they form part of the broad tax package available to businesses. To assist with stimulation of the general economy the Chancellor, in his March 2014 Budget, increased the Annual Investment Allowance to £500,000 with effect from April 2014, this limit is due to revert back to £25,000 (yes ….. just 5% of the limit currently available) with effect from the 1st January 2016.
This date is now just less than 12 months away, and whilst we may expect this date to be changed by the Government between now and then, it may not be.
So what does this mean for businesses?
The current high Annual Investment Allowance is a great opportunity for businesses to invest in their business and maximise the benefits. Utilising the current allowance not only provides the incentive to acquire the latest business equipment and plant (which should improve their efficiency and competitiveness), but will also stimulate growth in the economy as a whole.
Written by Victoria Williamson, Nwes Business Advisor