Firms considering making investments in new plant and machinery are being urged to do so now while generous tax allowances are still available.
The advice comes from Bristol-based chartered accountancy firm Whyatt Pakeman Partners, which says that the Annual Investment Allowance (AIA), a capital allowance which enables business owners to write off 100% of their qualifying capital expenditure against taxable profits, is set to be cut from £100,000 to £25,000 from April 2012 (1 April 1 for companies, April 6 for income tax businesses).
At the same time, writing down allowances for plant and machinery will reduce from 20% to 18%.
Whyatt Pakeman is advising businesses which want to make their investments as tax efficient as possible, to consider bringing forward their capital expenditure – particularly if their accounting year straddles the deadline.
Associate Tracy Hall said: “AIA currently offers tax relief at 100% on all qualifying expenditure in the year of purchase. A generous rate of £100,000 has been around for a year, but this will soon end in April 2012.
“Any company leaving the decision until the end of their accounting year could fall foul of the changes.
“Large purchases made from April 2012 to the end of their accounting year may not qualify in full for the 100% deduction against profits, because AIA relief is time apportioned.”
If businesses have a chargeable period that spans the rate change, the maximum allowance for the transitional period will fall into two parts:
- The AIA entitlement, based on the previous £100,000 annual cap for the proportion of the accounting year falling before the relevant operative date (April 1 or 6)
- The AIA entitlement, based on the new £25,000 cap for the portion of the year falling on or after the relevant operative date.
“Any business contemplating significant capital expenditure in the near future should review the timing in order to optimise the tax reliefs available.” added Tracy .
