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.

Year End Tax Planning

Business man holding TAX

The end of the tax year is fast approaching, but there is still time before 5 April to save tax for 2016-17. Below are some points you may wish to consider.

MAXIMISE CAPITAL ALLOWANCES

Businesses may be able to write off the cost of capital assets by making the most of capital allowances. The Annual Investment Allowance allows businesses to claim a deduction of up to £200,000 of the year’s investment in plant and machinery (with the exception of cars). Most business structures can make use of the AIA.

UTILISE YOUR FULL ISA ALLOWANCE

Individuals may invest up to £15,240 for the current tax year. A saver may only pay into a maximum of one cash ISA, one stocks and shares ISA and one innovative finance ISA per year. Savers have until 5 April 2017 to make full use of their 2016-17 ISA investment allowance. ISAs can offer a very useful tax-free way to save.

TAX EFFICIENT RETIREMENT PLAN

Pension contributions have to be paid by 5 April 2017 for them to be relieved against 2016-17 income. Annual contributions cannot exceed the greater of £3,600 (gross) or the amount of your UK relevant earnings eligible for tax relief. However, the contributions are subject to the annual allowance, currently £40,000. This is further reduced for those with net income of over £110,000 and adjusted annual income (i.e. your income plus both your own and your employer’s pension contributions) over £150,000. For every £2 of adjusted income over this figure, a person’s annual allowance is reduced by £1 (down to a minimum of £10,000).

For further information please contact our tax team here at Green & Co.

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

 

Nick Park analyses the Budget on BBC Radio Wales

To find out what other announcements were made in  the Chancellor’s Budget, read our Budget Summary.

A Tax Efficient Company Car

In recent years the government has changed the way that company cars are taxed. They have been trying to encourage more people to be environmentally friendly. Consequently, the higher a car’s CO2 emissions, the higher your tax bill on the benefit in kind, and the lower the capital allowances that are available for the company.

With this in mind, Mitsubishi has recently launched the Plug-in Hybrid Electric Vehicle (PHEV) version of its all new Outlander. This vehicle comes with some impressive green credentials, only producing CO2 emissions of 44g/km and achieving a mightily impressive 148mpg.

The fact that this vehicle has such low emissions makes it the ideal company car.

In the year of purchase, the company would be able to claim back 100% of the cost of the vehicle against its tax bill.

The benefit in kind rating against the employee is only 5%. This means that an employee paying tax at basic rate would only pay £596 in tax for the use of the vehicle and fuel purchased during the year. As you can see from the table below this easily outstrips its nearest rivals:

Tax payable on benefit Mitsubishi Outlander GX4h Auto BMW X3 Xdrive SE Auto Audi Q3 S-Line Plus Auto Mercedes E-Class SE Estate Auto
At basic rate £596 £2,575 £3,040 £2,770
At higher rate £1,192 £5,150 £6,080 £5,540

If you currently live in London or travel there frequently, there is also the additional good news that the Outlander PHEV is registered as congestion charge exempt, allowing you to travel through London free of charge.There are also grants currently available on the purchase of this vehicle. You will be able to get a grant of £5,000 against the initial cost of the vehicle. British Gas are also currently able to install high speed chargers at your home, so that you would be able to take advantage of cheap Economy 7 electricity by charging your vehicle overnight.

Do you have any queries about company cars? Here at Green & Co, we are more than happy to help you.

Should you wish to read more about the new Mitsubishi Outlander PHEV, please visit the website.

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

The Tax Efficient Company SUV – Mitsubishi Outlander PHEV

In recent years the government has changed the way that company cars are taxed. They have been trying to encourage more people to be environmentally friendly. Consequently, the higher a car’s CO2 emissions, the higher your tax bill on the benefit in kind, and the lower the capital allowances that are available for the company.

With this in mind, Mitsubishi has recently launched the Plug-in Hybrid Electric Vehicle (PHEV) version of its all new Outlander. This vehicle comes with some impressive green credentials, only producing CO2 emissions of 44g/km and achieving a mightily impressive 148mpg.

The fact that this vehicle has such low emissions makes it the ideal company car.

In the year of purchase, the company would be able to claim back 100% of the cost of the vehicle against its tax bill.

The benefit in kind rating against the employee is only 5%. This means that an employee paying tax at basic rate would only pay £596 in tax for the use of the vehicle and fuel purchased during the year. As you can see from the table below this easily outstrips its nearest rivals:

Vehicle Mitsubishi Outlander GX4h Auto BMW X3 Xdrive SE Auto Audi Q3 S-Line Plus Auto Mercedes E-Class SE Estate Auto
Tax payable on benefit £596 £2,575 £3,040 £2,770

If you currently live in London or travel there frequently, there is also the additional good news that the Outlander PHEV is registered as congestion charge exempt, allowing you to travel through London free of charge.There are also grants currently available on the purchase of this vehicle. You will be able to get a grant of £5,000 against the initial cost of the vehicle. British Gas are also currently able to install high speed chargers at your home, so that you would be able to take advantage of cheap Economy 7 electricity by charging your vehicle overnight.

Do you have any queries about company cars? Here at Green & Co, we are more than happy to help you.

Should you wish to read more about the new Mitsubishi Outlander PHEV, please visit the website.

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

Budget 2014 and 2014/15 Tax Tables

If you are interested in the tax allowances for 2014/15, please refer to our Tax Tables: Green & Co 2014/15 Tax Tables

If would like to  read our summary of the 2014 Budget, then please follow this link: Green & Co Budget Summary 2014

The main issues include:

Savings: Reform of ISAs. The current distinction between stocks and shares ISAs and cash ISAs will be simplified with the creation of the New ISA (NISA). The annual contribution limit is also increasing to £15,000, making it possible for a couple to save up to £30,000.

Annual Investment Allowance (AIA): If you are investing in plant and machinery for your business, the amount you can claim capital allowances on has doubled from £250,000 to £500,000. This will run from April 2014 to 31 December 2015.

EISs & VCTs: No change in the rules for EIS and VCTs as you can still claim 30% income tax relief on these investments.

Inheritance Tax (IHT): The IHT threshold will remain at £325,000 until 5 April 2018.

For more tips, refer to the ‘think ahead’ boxes of our guide.

Please contact us if you need more information on these changes, or any other matter.

Can company car’s still be tax efficient?

The way company cars are taxed has changed quite significantly over the years, with the rules now concentrating on CO2 emissions instead of the list price.

The government is trying to encourage more people to be environmentally friendly and consequently the higher the car’s CO2 emissions, the higher your tax bill on the benefit in kind, and the lower the capital allowances that are available for the company.

Capital Allowances

  • For brand new cars with CO2 emissions of 95/km or less =        100% relief
  • If CO2 emissions are between 96g/km and 130g/km =               18% relief.
  • If CO2 emissions are more than 130g/km =                                8% relief.

However fear not, many car manufacturers have cottoned on to the governments tactics and are producing some flash, CO2 friendly cars, for people who can’t quite bring themselves to drive around in a Smart car! Some of the cars available which have 95g/km or less are Lexus CT 200h S, Toyota Yaris Hybrid T3 1.5 WT-I and Volkswagen Polo Bluemotion 1.2 TDI. For more cars in this category please see www.greencarsite.co.uk

Benefit in kind

The car benefit charge for a full year is obtained by multiplying the list price of the car (plus accessories, less capital contributions) by the ‘appropriate percentage’. For example if you buy a Lexus CT 200h which has 87g/km CO2 emissions, the benefit is calculated at a rate of 10% of its list price of £21,995, giving a car benefit of £2,195. This results in a basic rate tax payer paying £439 in tax!

Please contact us if you require any further information.

 

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

Think Bike!

www.greenandco.com

Would you consider the use of a motorcycle in your business?

In recent years, the capital allowances available on cars have been increasingly restricted based on the CO2 emissions in order to encourage business owners to consider  more environmentally friendly options when purchasing new vehicles.

Cars purchased as of 6 April 2012 with CO2 emissions between 110g/km and 160g/km would qualify for an 18% annual writing down allowance whilst cars exceeding 160g/km only 8%. (The CO2 emissions of a car can be found on it’s V5 documentation)

At this present time, cars with CO2 emissions below 110g/km are eligible for 100% first year allowances, however there are limited options available with such low CO2 emissions and this generous allowance may not continue into the future.

Prior to April 2009, motorcycles were included under the HMRC definition of a ‘car’ however motorcycles purchased after 6 April 2009 do not fall into this category and therefore offer more scope for capital allowances, with up to 100% of the cost of the motorcycle available for deduction in the financial year it was purchased.

Any allowances available on cars would be subject to a reduction for private use, as would the allowances available on a motorcycle, the main difference being the amount of allowance available to begin with.

For example, for the financial year in which it was purchased, a car costing £10,000 with CO2 emissions of 130g/km would qualify for a writing down allowance of £1,800 (£10,000 @ 18%).

The same scenario where the car has CO2 emissions of 170g/km, the allowance would only be £800 (£10,000 @ 8%).

A motorcycle costing £10,000 however, given that it would not fall under the HMRC definition of a ‘car’, would qualify for a £10,000 writing down allowance in the financial year of purchase under the Annual Investment Allowance Scheme (capped at £25,000 p.a. for the year 6 April 2012 to 5 April 2013).

What about the small print? Obviously you would have to be able to justify that it is reasonable for you to use your motorcycle within the course of your business i.e. it would be highly unlikely that you could class a motorcycle as a suitable method of transport for a plumber who would have to carry tools etc.

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

Image courtesy of gualberto107 at FreeDigitalPhotos.net