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Capital Allowances update

The Capital Allowances Regime changed (again) on 1 January 2013; the current provisions offer businesses a significant tax saving opportunity – an increase to £250,000 in the Annual Investment Allowance (AIA).

This change gives 100% tax relief for expenditure on plant, machinery, fixtures, fittings, etc (but not cars) on items that would normally be written off over many years. The relief is introduced for only a two-year period, and it will revert to £25,000 from 1 January 2015. There is, therefore, a limited opportunity to maximise tax relief on capital costs.

It is important to note that unless you have a company with a year end of 31 December the position is not entirely straightforward. The detailed rules are complex and a reminder on the rates of relief and a couple of examples may help you to better plan your spend.

Rates of relief:

  • Up to 31 March 2012 for companies, 5 April 2012 for unincorporated businesses, £100,000
  • Up to 31 December 2012 for all businesses, £25,000
  • From 1 January 2013 for all businesses, £250,000

AIA example - company with y/end 28 February 2013:

The total relief due for the year is £68,750, being:

  • Period between 1 March 2012 and 31 March 2012 - £8,333 (£100,000 x 1/12)
  • Period between 1 April and 31 December 2012 - £18,750 (£25,000 x 9/12)
  • Period between 1 January and 28 February 2013 - £41,667 (£250,000 x 2/12)

However, because of the way the relief works, the 100% relief on expenditure between 1 April and 31 December 2012 is capped at only £22,917!

AIA example - company with year end 31 March 2013:

The total relief due for the year is £81,250 being:

  • Period between 1 April and 31 December 2012 - £18,750 (£25,000 x 9/12)
  • Period between 1 January and 31 March 2013 - £62,500 (£250,000 x 3/12)

Once again timing is important. Because of the way the relief works the 100% relief on expenditure between 1 April and 31 December 2012 is capped at only £25,000.

There will be similar issues with the transition out of the higher relief – most companies will have just one year in which a full £250,000 may be claimed. You will need to plan carefully on timings to ensure full relief is available.

It is also worth remembering that 100% relief is due, in addition to the AIA, in respect of fixed assets acquired for the purpose of research and development (R&D) and on certain “green” assets – see www.eca.gov.uk for details. A proper identification of capital costs between the relevant categories can increase the relief available substantially.

 

 

Date: 5th April, 2013
Author: Cathy Corns

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