Timing in tax is everything
As the economy is starting to pick up and Christmas is just around the corner you might be thinking about splashing the cash on some equipment for your business, however if you hold fire to the New Year you might end up paying more tax than you need to.
At the moment an Annual Investment Allowance (or AIA for short) of up to £250,000 a year is available for all businesses.
Big deal, you’re probably thinking, how does this affect me?
The AIA allows you to write off 100% of the cost of most new equipment when you buy it, instead of over it’s useful life (this could be 10 years or more). It’s therefore a very useful tax break, especially if you’re a business looking to grow or you’re thinking of a business refit.
I never spend £250K a year on equipment I hear you say, so why do I need to worry?
Well from 1 January 2016 the AIA plummets to £25,000 a year so if your accounting period straddles 1 January 2016 you could miss out big time.
OK, hopefully we’ve now got your attention(!), so let’s show you an example.
Ginny runs her own café and prepares her accounts to 31 March each year.
During the year she spent the following money on new equipment.
Cost £
1 November 2015 New dishwashers £5,000
1 February 2016 New cookers £20,000
As the economy is starting to pick up and Christmas is just around the corner you might be thinking about splashing the cash on some equipment for your business, however if you hold fire to the New Year you might end up paying more tax than you need to.
At the moment an Annual Investment Allowance (or AIA for short) of up to £250,000 a year is available for all businesses.
Big deal, you’re probably thinking, how does this affect me?
The AIA allows you to write off 100% of the cost of most new equipment when you buy it, instead of over it’s useful life (this could be 10 years or more). It’s therefore a very useful tax break, especially if you’re a business looking to grow or you’re thinking of a business refit.
I never spend £250K a year on equipment I hear you say, so why do I need to worry?
Well from 1 January 2016 the AIA plummets to £25,000 a year so if your accounting period straddles 1 January 2016 you could miss out big time.
OK, hopefully we’ve now got your attention(!), so let’s show you an example.
Ginny runs her own café and prepares her accounts to 31 March each year.
During the year she spent the following money on new equipment.
Cost £
1 November 2015 New dishwashers £5,000
1 February 2016 New cookers £20,000
As the economy is starting to pick up and Christmas is just around the corner you might be thinking about splashing the cash on some equipment for your business, however if you hold fire to the New Year you might end up paying more tax than you need to.
At the moment an Annual Investment Allowance (or AIA for short) of up to £250,000 a year is available for all businesses.
Big deal, you’re probably thinking, how does this affect me?
The AIA allows you to write off 100% of the cost of most new equipment when you buy it, instead of over it’s useful life (this could be 10 years or more). It’s therefore a very useful tax break, especially if you’re a business looking to grow or you’re thinking of a business refit.
I never spend £250K a year on equipment I hear you say, so why do I need to worry?
Well from 1 January 2016 the AIA plummets to £25,000 a year so if your accounting period straddles 1 January 2016 you could miss out big time.
OK, hopefully we’ve now got your attention(!), so let’s show you an example.
Ginny runs her own café and prepares her accounts to 31 March each year.
During the year she spent the following money on new equipment.
Cost £
1 November 2015 New dishwashers £5,000
1 February 2016 New cookers £20,000
Total £25,000
The maximum AIA she can claim for the year ended 31 March 2016 is as follows:-
1 April to 31 December 2015 £250,000 x 9/12 £187,500
1 January to 31 March 2016 £25,000 x 3/12 £6,250
Total £193,750
Well £25,000 is less than £193,750 so what’s the problem?
As the £5,000 cost of the dishwashers is less than the maximum of £193,750 for the whole period 100% of their cost can be written off immediately.
OK but what about the £20,000 paid for the new cookers?
Well the maximum AIA for new equipment bought on or after 1 January 2016 is restricted to the AIA which relates to the part of the accounting period after 1 January 2016 – in other words £6,250.
So Ginny can only write off £6,250 of the cost of the new cookers immediately and the balance of £13,750 has to be written off over the cookers' useful life (if they’re anything like our cooker this could be a very long time!!).
If only Ginny had bought her new cookers on 1 December 2015 then she could have written off the whole £20,000 immediately and got an early Christmas present at the taxman’s expense.
And remember, these tips are not a replacement for professional advice tailored to your precise needs and circumstances.