The capital allowances regime will change significantly on 1 April 2012 for limited companies and on 6 April 2012 for soletraders and partnerships.
Currently, there is an annual investment allowance of £100,000 per annum which means that expenditure on plant & machinery, including vans, is fully tax deductible in the year of acquisition up to £100,000 of total expenditure. From 1/6 April 2012 this annual allowance will fall to £25,000 per annum. Any amounts in excess of the £25,000 will only qualify for annual writing down allowances of 18% of cost (20% prior to 1/6 April 2012).
For any business with a 31 March year end therefore, there will be a significant benefit in incurring any major plant and machinery investment before the year end when the higher rate of annual investment allowance will apply.
However the position becomes more complicated where the business year end spans 1/6 April 2012. In this case, any expenditure incurred prior to 1/6 April will get a proportionate amount of the £100,000 annual investment allowance, whilst any expenditure after 1/6 April 2012 will get a proportionate amount of the £25,000 annual investment allowance but none of the £100,000 annual investment allowance.
For example, a business with a year end of 31 May:
If expenditure on plant and machinery is incurred before 1/6 April 2012 then it will attract a maximum of 10/12 of the £100,000 (i.e. 10 months out of 12) which amounts to a maximum of £83,000.
If expenditure is incurred in April or May, however, then it will not attract any of the £100,000 allowance and will only be eligible for a maximum of 2/12 of the £25,000 allowance which is a measly £4,166.
Confused?????? – we certainly were – so if you are thinking of acquiring plant and machinery in the next six months or so, and want some advice on the best timimg, please do not hesitate to give us a call.
This article was compiled by Ashley Barrowclough on behalf of the Balance Team
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