Are You Making the Most of Capital Allowances?

Purchasing plant and machinery

Businesses looking to purchase capital equipment are able to claim tax relief in the form of capital allowances. Here we outline some of the key details.

What is the Annual Investment Allowance?

Businesses purchasing plant and machinery are able to make use of the Annual Investment Allowance (AIA), which allows the costs for equipment, machinery and business vehicles (excluding cars) to be deducted from your profits before tax. The maximum annual amount of the AIA is £200,000. The AIA applies to businesses of any size and most business structures, but there are provisions to prevent multiple claims.

Plant and machinery includes items such as machines, equipment, furniture, certain fixtures, computers and similar equipment you use in your business. However, certain items do not count as plant and machinery. These include buildings, land and structures, and items that you lease. There are special rules for cars and some specific ‘environmentally friendly’ equipment.

Enhanced Capital Allowances

In addition to the AIA, a 100% first year allowance is also available on energy-saving or environmentally friendly equipment. A separate Enhanced Capital Allowances (ECA) scheme is available for new electric and low carbon dioxide (CCb) emission cars (up to 75 g/km – reducing to 50 g/km from April 2018) and new zero emissions goods vehicles (up to 31 March 2018 (corporates) or 5 April 2018 (others)). They also qualify for the 100% first year allowance.

Expenditure pooling

Where purchases exceed the AIA a writing down allowance (WDA) is due on any excess in the same period. This WDA is currently set at a rate of 18%. This is the main rate pool and it is available on any expenditure incurred in the current period not covered by the AIA or not eligible for the AIA as well as on any balance of expenditure remaining from earlier periods.

Certain expenditure on building fixtures, known as integral features (e.g. lighting, air conditioning, heating, etc.) is only eligible for an 8% WDA so is allocated to a separate ‘special rate pool’, though integral features do qualify for the AIA.

Motor vehicle expenditure

With regard to capital allowances, special rules govern the treatment of expenditure on vehicles. Cars do not qualify for the AIA, but other specific types of vehicle are treated as pool, plant and machinery.

For business cars, a vehicle’s level of C02 emissions plays a key role in its capital allowance treatment. New low emission cars acquired between 1/6 April 2015 and 31 March/5 April 2018 and not exceeding 75 g/km C02 emissions will be allocated to the main rate pool, and will be eligible for a 100% allowance. Vehicles not exceeding 130 g/km C02 emissions will also be allocated to the main rate pool, but will be eligible for an 18% WDA. Those that exceed 130 g/km C02 emissions will be allocated to the special rate pool, and will be eligible for an 8% WDA.

From April 2018, new capital allowance rules for cars are set to take effect.

How do I make a claim for capital allowances?

Businesses are required to make a claim for capital allowances through their tax return. Unincorporated businesses must make a claim within 12 months after the 31 January tax return filing deadline. Companies must ensure that their claim is made within two years of the end of the accounting period.

If you are considering investing in plant and machinery, please talk to us first as we can help to ensure that you time your purchase to receive the maximum tax benefit.

Please note: This article is a commentary on general principles and should not be interpreted as advice for your specific situation.

Advisory Fuel Rates from 1st September 2017

Fuel rates

For employees using a company car, the new fuel rates for use from 1 September are as follows:

Engine Size Petrol LPG Diesel
Amount per mile (in pence)
1400cc or less 11 7 9
1401cc to 1600cc 13 8 9
1601cc to 2000cc 13 8 11
Over 2000cc 21 13 12

For the purpose of fuel rates, hybrid cars are treated as either petrol or diesel cars.

Please note: This article is a commentary on general principles and should not be interpreted as advice for your specific situation.

Tax and Your Company Car

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There are many factors which will influence your choice of company car. These can include the distance you travel, terrain covered, the price, your lifestyle and perhaps even your clients. However, is tax ever a consideration?

The start of the tax year saw an increase in the company car rates and indeed the rates are increasing quite significantly year on year. Assuming however that you have some degree of choice over the car make and model, you can influence the tax that you pay.

The two factors which determine the tax charge attached to a company car are the list price of the vehicle and its CO2 emissions.

The table below shows the benefit in kind charge for cars with various, hypothetical,  list prices and CO2 emissions.  The rates applicable to the current tax year (2017/18) have been used.

List price CO2 emissions Fuel type Benefit in kind value
£17,000 102g/km Petrol £3,230
£25,000 99g/km Petrol £4,500
£25,000 117g/km Diesel £6,250
£35,000 0g/km Electric £3,150
£50,000 41g/km Electric/Petrol £4,500
£50,000 155g/km Diesel £16,500

In addition to the company car benefit there is also a fuel benefit if the employer provides fuel for private use; the value of the fuel benefit is affected by the CO2 emissions but not by the list price.

Although tax will not be the only issue affecting your choice of company car, perhaps it ‘auto’ be a consideration?

If you’d like any more information please contact Green & Co Accountants.

Please note: This article is a commentary on general principles and should not be interpreted as advice for your specific situation.

Advisory Fuel Rates from 1st June 2017

Fuel rates

For employees using a company car, the new fuel rates for use from 1 June are as below:

Engine Size Petrol LPG Diesel
Amount per mile (in pence)
1400cc or less 11 7 9
1401cc to 1600cc 14 9 9
1601cc to 2000cc 14 9 11
Over 2000cc 21 14 13

For the purpose of fuel rates, hybrid cars are treated as either petrol or diesel cars.

Please note: This article is a commentary on general principles and should not be interpreted as advice for your specific situation.

VAT Fuel Scale Charge

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To make accounting for private use of fuel simpler, you can choose to apply the VAT fuel scale charge. This scale charge adds back a fixed sum each VAT period to account for the private use of fuel, making redundant any need to split the mileage between business and private use.

The scale charge for any given vehicle is based upon its CO2 emissions. HMRC update the scale charge table every May, and this years can be found here.

Scale charges only apply to those cars where there is allowed private usage, and when you start using the scale charge, you must use it on all your company’s cars for which there is private use.

Those using the scale charges, should be sure to keep a record of:

  • Number of cars which it is applied to
  • CO2 band of each car (or cylinder capacity if the car is too old for an emissions figure)
  • Details of when cars have been bought and/or sold.

Please note: This article is a commentary on general principles and should not be interpreted as advice for your specific situation.

 

Advisory Fuel Rates from 1st March 2017

petrol pump nozzle with golden gas drops

For employees using a company car, the new fuel rates for use from 1st March are as below:

Engine Size Petrol-amount per mile LPG-amount per mile Diesel-amount per mile
1400cc or less 11 pence 7 pence 9 pence
1401cc to 1600cc 14 pence 9 pence 9 pence
1601cc to 2000cc 14 pence 9 pence 11 pence
Over 2000cc 20 pence 14 pence 13 pence

For the purpose of fuel rates, hybrid cars are treated as either petrol or diesel cars.

Advisory Fuel Rates From 1st June

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For employees using a company car, the new fuel rates for use from 1st June are as below:

Engine Size Petrol-amount per mile LPG-amount per mile Diesel-amount per mile
1400cc or less 10 pence 7 pence 9 pence
1401cc to 1600cc 13 pence 9 pence 9 pence
1601cc to 2000cc 13 pence 9 pence 10 pence
Over 2000cc 20 pence 13 pence 12 pence

For the purpose of fuel rates, hybrid cars are treated as either petrol or diesel cars.

Advisory Fuel Rates From 1st March 2016

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For employees using a company car, the new fuel rates for use from 1st March are as below:

Engine Size Petrol-amount per mile LPG-amount per mile Diesel-amount per mile
1400cc or less 10 pence 7 pence 8 pence
1401cc to 1600cc 12 pence 8 pence 8 pence
1601cc to 2000cc 12 pence 8 pence 10 pence
Over 2000cc 29 pence 13 pence 11 pence

For the purpose of fuel rates, hybrid cars are treated as either petrol or diesel cars.

Image courtesy of supakitmod at FreeDigitalPhotos.net

Advisory Fuel Rates From 1st December

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For employees using a company car, the new fuel rates for use from 1st December are as below:

Engine Size Petrol-amount per mile LPG-amount per mile Diesel-amount per mile
1400cc or less 11 pence 7 pence 9 pence
1401cc to 1600cc 13 pence 9 pence 9 pence
1601cc to 2000cc 13 pence 9 pence 11 pence
Over 2000cc 20 pence 13 pence 13 pence

For the purpose of fuel rates, hybrid cars are treated as either petrol or diesel cars.

Image courtesy of supakitmod at FreeDigitalPhotos.net