Capital Allowances

Posted on in Capital Allowances

What tax incentives are available to invest in assets used in my business?

Until March 2012, expenditure up to £100,000 over 12 months receives 100% tax relief. For a small limited company this is an immediate tax saving up to £20,000 (or 20%) and for a higher rate sole trader/partner up to £40,000 (or 40%).

From April 2012, this limit is reduced to £25,000, so if you are making a large investment this year, be sure to be committed before April.

If your expenditure exceeds £100,000 or the new £25,000 it may still be possible to receive 100% relief for your total expenditure by delaying some expenditure so it is incurred over two or more 12 month periods.

For a sole trader/partner the resulting lower profits may increase your Working Tax Credit claim providing you with a further benefit.

Eligible expenditure includes:

  • Machinery
  • Computers
  • Furniture
  • Heating and air conditioning
  • Moveable partitions
  • Battery chargers and generators

For example, an office or warehouse refurbishment may be more affordable than you think and be a good bridge before committing to larger premises.

Other existing favourable capital spend allowances include 100% relief for environmentally friendly fixtures such as certain electrical systems. Or 100% relief to renovate a flat above, say, a shop. This may have the added advantage of improving your rental income.

If you are struggling to persuade your bank to lend you money, explaining the tax rebates and beneficial cashflow may help to receive their approval.

Your capital spend decision should be made after checking your existing/potential trading losses and capital allowances and your personal allowance position, because the timing of expenditure is crucial to maximising the tax benefit to your business. And you need to be clear the rules apply as you expect as they are quite specific in certain situations.