 December
2007
Changes Ahead for Capital
Allowances
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
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