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Business Newsletters - Winter 2007
Buying or leasing business equipment
If you are planning to buy or lease some new business equipment over the next year, you should consider the changes to the tax reliefs known as capital allowances, which are due to take effect from April 2008.
First the good news
All items that qualify as plant or machinery, including fixtures in buildings
and vans, will be eligible for the new Annual Investment Allowance (AIA)
of £50,000 if purchased on or after 1 April 2008 for companies,
and from 6 April 2008 for unincorporated businesses. The allowance will
give immediate tax relief for the cost of equipment within the annual
limit of £50,000, which is much better than the spreading of tax
relief over several years, which applies to equipment purchased before
April 2008.
Where your accounting year does not start on 1 April or 6 April
the first AIA limit will be proportionally reduced. If a company year
runs from 1 January 2008 to 31 December 2008 it will get nine months'
worth of the AIA (£37,500) for purchases made between 1 April 2008
and 31 December 2008. Purchases made before 1 April 2008 will qualify
for the existing First Year Allowances of 50% for small businesses and
40% for medium sized businesses.
Now the not so good news
The writing down allowances for plant and machinery are being reduced
from 25% to 20% and this will affect all equipment that has already been
purchased and not fully relieved for tax purposes. This means it will
take longer to achieve full tax relief for any equipment purchased before
1or 6 April 2008, or bought after that date if it is not covered by the
AIA limit of £50,000 per year. This adds some complications, so
we will need to do some calculations to see if you should purchase your
new equipment before or after 1or 6 April 2008, or before your current
year end. Please talk to us before you buy.
Another change will affect the tax deduction for the cost of
certain fixtures in buildings (referred to as integral fixtures). Currently
many such fixtures qualify for a 25% writing down allowance but for purchases
on or after 1or 6 April 2008 the rate of the allowance will only be 10%
(if not covered by the AIA). We don’t know exactly which assets
will be classified as integral fixtures, but if you are considering buying
a building containing a lot of fixtures, it may be worthwhile sealing
the deal before 1 or 6 April 2008.
Is it better to lease?
If you lease equipment you can claim the capital allowances on the effective
capital cost of the asset if the agreement is a hire purchase contract.
Otherwise the capital allowances will normally be claimed by the lessor,
unless special rules apply. If you lease a car the lease rentals you can
set against tax are restricted where the car costs over £12,000.
If you are planning to incur capital expenditure or to take on
a lease of plant over the next few months please talk to us before you
do so. We can help you with the calculations.
