New Capital Allowance rules open up an opportunity to save tax


The two year increase in allowances with effect from 1 January 2013 has given many businesses, including those with March year ends, an opportunity to perhaps recover tax from last year.


Peter Skelly, Yeovil


With the current farming climate proving difficult, the ability to recover some tax now rather than making payments may prove strategically sensible for many farmers, provided they can manage the cash flow outgoings resulting from investment in plant and equipment.


In particular, a farmer with a March year end may choose to take advantage of the maximum Capital Allowances which may be claimed on equipment purchases in the year to 31 March 2013.


For example, a business with a 31 March 2013 year end would be entitled to a total Annual Investment Allowance (AIA) of £81,250 for the year on which it can achieve 100% tax relief. Within this the total spend between 1 April 2012 and 31 December 2012 cannot exceed £25k as this was the limit in force before the Autumn Statement announcement at the end of November 2012, but a full £81,250 is relievable if it is incurred between 1 January 2013 and 31 March 2013.


The full £250,000 AIA will available on expenditure for the year from 1 April 2013 to 31 March 2014, and £187,500 for the nine months to 31 December 2014 unless the goalposts unexpectedly shift again!


We are talking to clients who are looking to maximise the investment in plant and machinery in February and March. As readers will appreciate, writing off such significant Capital Allowances against taxable profits, where profits are already under pressure, means that taxable losses can be generated. These losses may be carried back and offset against previous liabilities in order to recover tax payments otherwise thought long gone. The arrangements might be such that a longer term Hire Purchase arrangement supporting necessary investment in the business provides for steady cash outflows to finance the investment. Meanwhile a lump sum tax rebate and/or reduced January 2013 tax payments (in expectation of lower 2012/13 taxable profits) might help the business to continue to operate smoothly in these more difficult times.


The change in AIAs implemented on 1 January 2013 is of course fundamentally only a timing difference. We are not encouraging businesses to spend money on equipment just for the sake of saving some tax, but where the equipment is intended to be purchased anyway it makes sense to plan ahead and time such expenditure such that the optimum balance of tax savings (perhaps in excess of 40%) and cash flow management at difficult times can be achieved.


“We are talking to clients who are looking to maximise the investment in plant and machinery in February and March.”


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