Considering investing in plant or equipment

Business owners may be considering their options for investment in new equipment especially if their trading year end is March, as is often the case. There are a number of considerations:

  1. Cash flow, can the business afford the cost or fund loan or other financing arrangements?
  2. Will the new equipment make a positive impact to the bottom line?
  3. What are the tax breaks?

Points one and two can be accommodated by revising business plans, including cash flow budgets.

The major tax break for qualifying equipment purchases is the Annual Investment Allowance (AIA).

Assets that qualify for AIA include:

  • Motorcycles, lorries, trucks and vans.
  • Equipment that you buy to use in your business, plant, computer and office equipment etc.

You can’t claim AIA on the purchase of cars, items that have been gifted to your business and items you owned for another reason before you started using them in your business.

From 1 January 2016, the maximum value of capital purchases that you can write off in any period of account is £200,000.

This remains a very generous investment allowance for smaller businesses. Sole traders and partners who are taxed on their business profits at higher rates (40{11092aa1eab99d85b02efc0ee3c04dc4f5b81bebfc2bd8f608402c1b0eb15b7e} or 45{11092aa1eab99d85b02efc0ee3c04dc4f5b81bebfc2bd8f608402c1b0eb15b7e}) will be eligible to claim a maximum tax reduction of up to £80,000 (at 40{11092aa1eab99d85b02efc0ee3c04dc4f5b81bebfc2bd8f608402c1b0eb15b7e}) or £90,000 (at 45{11092aa1eab99d85b02efc0ee3c04dc4f5b81bebfc2bd8f608402c1b0eb15b7e}) against their taxable income.

Planning for all of these issues needs to be carefully considered. Apart from the issues we have outlined above the timing of transactions can also be critical. We would be happy to assist. Professional advice is well worth the further investment as the benefits of a well thought out strategy will help you maximise, not only the tax relief available, but also the practical benefits of your new acquisition.

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