When is the best time to buy equipment and save on tax?
I need to invest in new capital equipment for my business and have heard of the Annual Investment Allowance which allows full tax relief for expenditure on capital. Should I purchase this equipment now or can I avail of the AIA relief next year?
A business can deduct 100% of the cost of purchased capital items that qualify for annual investment allowance (AIA) from their profits before tax, thus reducing the tax that is payable for the accounting period. This AIA applies to individuals, partnerships and corporations, regardless of their size.
Qualifying expenditure covers most assets purchased for use by businesses. Typical expenditure that does not qualify for AIA include cars, which are assessed for Capital Allowances based on their CO2 emissions, and land and buildings.
The current AIA limit is £500,000 per annum with effect from 1 April 2014 for companies and from 6 April 2014 for sole traders/partnerships.
Under existing law, the AIA limit is expected to revert to £25,000 per annum with effect from 1 January 2016. This means that equipment bought on and after 1 January 2016 will be subject to the reduced AIA limit of £25,000. It is therefore important that businesses planning to invest in capital equipment in the near future do so before 2016 while the higher AIA limit is in place.
Where the chargeable accounting period of the business is more or less than a year, the maximum AIA is proportionately increased or reduced. Also, where a business accounting period straddles a date of change of the AIA limits, for example 31 December 2015, there is an impact on the maximum AIA available to the business in that accounting period.
It is therefore advisable that you contact your accountant who will be able to advise you on how much AIA is available for your business for the accounting period and whether the proposed capital expenditure will qualify for AIA.
The advice above is specific to the facts surrounding the questions posed. Neither PKF-FPM nor the contributors accept any liability for any direct or indirect loss arising from any reliance placed on replies.
I'm going to find it hard to pay my tax bill by 31st January