JCB Finance highlights the impact of timing when it comes to your plant purchases and maximising on tax saving opportunities.
AFTER a period of uncertainty the Annual Investment Allowance settled at £200,000 from 1st January 2016, allowing for careful planning.
The Annual Investment Allowance (AIA) is a type of capital tax allowance that offers 100% tax relief on qualifying capital expenditure in the year of purchase. In the 2015 Summer Budget the Chancellor announced his plans to reduce the allowance to £200,000 from 1st January 2016 (a lower reduction than predicted) and committed to maintain the allowance at this level for the rest of this parliament. A welcome sign of stability, following three years of uncertainty which made it difficult for long term tax planning.
From 1st January the first £200,000 of expenditure on business assets (e.g. plant and commercial vehicles) per year is 100% allowable against taxable profits of a business, deductible in the year that you buy them. This accelerates the tax relief rather than the reducing writing down allowances normally applied over several years. You can claim the AIA against qualifying assets placed on Hire Purchase – just as if you had paid cash.
The chart opposite illustrates the maximum amounts available by showing four different financial year end companies and how vital it is to spend the right amount within the right periods in order to maximise the tax benefits. Given the lead times for some machinery, from order to delivery, this also needs to be carefully factored in to your buying plans. Get the timing and/or amounts wrong and your business could either miss out on available tax relief or worst still, end up paying far more tax then is required.
Other factors being equal, if your business is contemplating purchasing eligible plant or commercial vehicles in the near future, there are some strong tax-based and cash flow arguments to carefully plan the timing of your purchases so that you maximise on any available tax relief.
JCB Finance provides asset finance including Hire Purchase facilities for UK businesses but is not a tax or financial advisor – always seek advice from your accountant or tax advisor because every business’ circumstances are different.