Capital Allowances Roundup.

August 2010

The Annual Investment Allowance (AIA)

The following comments apply to the purchase of plant and other business equipment including commercial vehicles - but not cars.

From April 2008 sole traders, companies and partnerships (only partnerships where members of the firm are all individuals) could write off up to £50,000 a year of qualifying purchases against their taxable profits. From April 2010 this was increased to an annual allowance of £100,000 and from April 2012 it will be reduced to just £25,000.

Accordingly businesses have an opportunity to reconsider their capital expenditure plans, perhaps bring forward expenditure prior to April 2012 thus ensuring they can make the most of this generous allowance at the much higher £100,000 threshold.

Sole traders and partners considering this strategy should also consider the following consequences if the claim for AIA eliminates their profits for tax purposes:

You may be eligible to claim tax credits and may be advised to put in a protective claim now if your claim for AIA affects the tax year 2010-11.
Are you going to apply for a new mortgage or other personal finance? Your income for tax purposes can be used to support applications for personal finance, mortgages etc. If your income for tax is reduced due to a claim for AIA this may create problems for you.

Cars

You will not be able to claim the AIA if you buy a new or second hand car. In line with past changes, tax allowances for cars are now gearing towards pollution issues. The higher your vehicle's CO2 rating the less tax relief you will be able to claim.

Electric and very low CO2 emission cars qualify for a 100% tax allowance. Other cars qualify for a 20% or 10% writing down allowance based on their CO2 emissions.