Optimising Capital Allowances claims is an important tax cash-flow management tool for many businesses says Dyke Yaxley’s Associate Tax Director, Francesca Hutcheson.
” No tax relief is currently given for depreciation charged in the accounts; instead, Capital Allowances is the mechanism by which certain prescribed classes of assets are eligible for tax relief. The rate of relief will depend on the nature of the underlying asset; some, energy-efficient equipment can attract 100% tax relief in the year of purchase, whereas lighting and electrical installations may only attract 8% relief on a writing-down basis, meaning the pay-back period is over a much longer period, typically 10-12 years. “
In the last couple of weeks the Office of Tax Simplification has published a paper inviting comments on the possibility of providing tax relief for plant and machinery based on the accounting concept of depreciation, rather than the existing Capital Allowances regime.
” Although this sounds like a more logical approach in principle, many businesses rely on the positive tax cash impact of the Annual Investment Allowance, which currently allows businesses to benefit from 100% tax relief on the first £200,000 of qualifying expenditure on plant and machinery (excluding cars) in any given year. Removing the Annual Investment Allowance could therefore have a significant impact on business investment decisions and the likely pay-back period for planned capital expenditure. “
The Office of Tax Simplification has asked for responses from businesses, representative groups and professional advisers by 30 November 2017 and has also set out some questions which might help guide responses. As a firm, we would invite you to share your thoughts with us on how any changes could impact your business and investment decisions, so that we can incorporate these into our planned response to the consultation.