Capital expenditure – it’s all about timing

If you’ve read our post about tax allowable expenditure you will have seen that capital expenditure has some more complex rules. So here we explain in a bit more detail how this expenditure works from a tax point of view.

The basic rules

The normal rules for capital expenditure [when there are no special reliefs available] are based on the premise that a business receives the benefit from investing in capital expenditure over a number of years. For example a computer would be used for around 3 years before needing replacement.

So tax relief is enjoyed over a period of time and claimed as capital allowances. The current rate is 18% on a reducing balance basis for most assets or 8% for most motor cars.

Annual Investment Allowance

In order to persuade businesses to invest in capital expenditure the government has over the years introduced an annual investment allowance, which allows businesses to claim 100% of the amount invested against their profits for tax purposes.

They have for different periods in time set different maximum amounts which may be claimed. In the latest budget it was announced that the annual investment allowance was no longer going to be a temporary relief in order to provide certainty. Of course that remains to be seen.

The current position is as follows

1 January 2013 to 31 March 2014                                  £250,000 annual limit

1 April 2014 to 31 December 2015                                 £500,000 annual limit

from 1 January 2016                                                         £200,000 annual limit

So any business that is thinking about significant capital expenditure needs to plan the timing of the investments carefully to ensure they enjoy relief on the investment as early as possible.

Our recommendation is that you record your expected capital expenditure for the next 18 months and when you expect to make the investment and compare with the table above. You should also consider your company year end to ensure the expenditure is claimed in the earliest period possible. 

If you have a lot of capital expenditure due over the next 18 months, then give us a call and we can help you plan properly.

November 2015

Jason Seagrave | Partner | Seagrave French 

0115 941 5193 | jasonseagrave@sfbaa.co.uk

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