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Newsletter - Autumn 2010
Introduction »
Time to spend?
Capital allowances have changed significantly over the last few years and there are more changes in store, causing confusion about what allowances are available and when is the best time to buy new assets. As the changes have been announced quite far in advance it provides an opportunity to plan for the timing of capital expenditure in a tax efficient way.
The changes as detailed below will affect the self-employed from 6 April 2012 and companies from 1 April 2012. General plant and machinery currently qualifies for a writing down allowance (WDA) of 20% but this rate is dropping to just 18%. However, in the case of companies the potential impact of the reduced tax relief on capital allowances will be balanced partly/fully by the fact that lower corporation tax rates apply on taxable profits generally from 1 April 2011 onwards. For a company which qualifies to be charged at the small profits rate there is a decrease to 20% from 21%. The main company rate is to decrease in stages commencing on 1 April 2011 by 1% each year until it reaches 24%.
Example 2012/13
For a business with a general plant pool balance of £50,000, allowances will reduce by £1,000, (20% -18% x £50,000). For a self-employed individual subject to higher rate tax this is an increase in the overall bill of £420. This assumes the higher rate of tax remains at 40% and the additional national insurance is 2% (National insurance increases by 1% from 6 April 2011 so the rate in excess of the upper limit increases from 1% to 2%). The increase in tax for a small company paying 20% corporation tax will in contrast only be £200.
The WDA for the special rate plant pool will also reduce from the current 10% rate to 8%. This pool includes certain plant fixtures in buildings, such as air conditioning and heating systems as well as cars with CO2 emissions in excess of 160g/km.
The Annual Investment Allowance (AIA) is also to be reduced. This is an allowance which can be offset against plant and machinery acquisitions (excluding cars), effectively providing 100% tax relief within the allowable limit. The AIA expenditure limit increased at the start of April 2010 from £50,000 to £100,000, but will decrease significantly to just £25,000.
It would make sense for both companies and the self-employed to review their capital expenditure plans to take advantage of the higher allowance limit in the next 18 months. Please contact us for more detailed advice.
Introduction »
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