Capital Allowances – It’s all in the timing to maximise your claim.

You can claim tax relief against your trading profits, called capital allowances when you buy plant, machinery, equipment, vans, lorries and to some extent cars.

The Annual Investment Allowance (AIA) which currently gives a 100% deduction against profits for the cost of the asset (excluding cars) is due to decrease from its current level of £500,000 to £25,000 from 1 January 2016.

Expenditure must be planned carefully, for example if your year-end is 31 March then the AIA will apply as follows:

1 April 2015 – 31 December 2015 = £375,000 (9 months based on £500,000 AIA)

1 January 2016 – 31 March 2016 = £6,250 (3 months based on £25,000 AIA)

To maximise a claim in the year you cannot wait until March 2016 to spend £375,000, the deadline for this level of expenditure is 31 December 2015. If you wait until the beginning of 2016 you will only be able to wholly off-set £6,250 against profits and 18% of the remainder of your purchase in that year.

Asset Finance

If you buy an asset under hire purchase or other finance you can claim for the full cost up front but only when you bring it in to use. If you are going to purchase an asset under finance before your year-end, make sure your paperwork is in order and the asset is in use.

The AIA is a valuable tax relief, and it is worth taking some time to ensure you make the most of the higher allowances whilst they are available.

If you would like further advice on how to utilise your Annual Investment Allowance effectively, please contact Pete Harrison, Director at Wright Vigar at pete.harrison@wrightvigar.co.uk or call a member of our tax team on 01427 611296 – we would be delighted to help you.