Capital allowances: getting the timing right

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Capital allowances allow the costs of capital assets to be written off against taxable profits. In recent years the Government has been generous with the rates of capital allowances in an attempt to help businesses and encourage greener investment.

For a temporary period from 1 April 2014 to 31 December 2015 (6 April for unincorporated businesses), the majority of businesses are able to claim an Annual Investment Allowance (AIA) - in effect, a year‑one write off - on the first £500,000 of expenditure on most types of plant and machinery (but not cars, to which different rules apply).

The AIA is to reduce to £200,000 from 1 January 2016 and where a chargeable period straddles this date, the maximum amount of AIA entitlement is calculated on a pro-rata basis. There are also restrictions on the amount of expenditure which can qualify for AIA depending on when the assets were purchased.

‘Greener’ investment is encouraged through specific 100% allowances available for some assets, including energy‑saving equipment and low CO2 emissions (up to 75 g/km) cars. Otherwise the general rate of annual writing down allowance is 18% on the reducing balance, with an 8% allowance for certain categories, including cars with CO2 emissions exceeding 130 g/km, long life assets and certain specified integral features of buildings.

Typically, a purchase made just before the end of the current accounting year will mean the allowances will usually be available a year earlier than if the purchase was made just after the year end. In the same way, the disposal of an asset may trigger an earlier claim for relief or even an additional charge to tax.

Careful consideration should be given to the timing of any expenditure to ensure you are able to maximise the available relief. Please speak to us for further advice.

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