Pictured: Richard Wherton
Businesses need to be up to speed on changes to capital
allowances if they are to prosper, according to Richard Wherton, a
partner at the Midlands office of national audit, tax and advisory
firm Crowe Clark Whitehill.
"Maximising tax advantages could create vital extra cash," he
stressed.
"When the Chancellor announced he would reduce the rate of
corporation tax to increase the attraction of the UK for
multi-nationals, he said that he would pay for this by reducing
certain tax reliefs like capital allowances," noted Mr Wherton.
"However, capital allowances can be claimed both by companies
that are benefiting from the cut in corporation tax rates and
unincorporated businesses, like sole traders and partnerships,
which have seen an increase in the top rate of tax to 50 per
cent.
Mr Wherton continued: "Every business should pay attention to
the changes to capital allowances and plan the timing of their
capital expenditure. Businesses should review their budgets to
maximise the tax advantages but should also consider the commercial
sense of incurring expenditure."
The Annual Investment Allowance (AIA), providing immediate tax
relief for up to £100,000 per year of expenditure on plant
and machinery, reduces to £25,000 next April. Therefore,
business owners need to plan the timing of expenditure especially
if their accounting year straddles the date change.
At the same time, the Writing Down Allowance (WDA) will reduce
from 20 per cent (10 per cent for certain assets) to 18 per cent
(eight per cent).
However, earlier this year, 'short life' was doubled to eight
years and therefore short life asset (SLA) elections are set to
become more popular. Providing the asset is sold or written off
within eight years the business should claim full tax relief over
its life.
"Compare this with assets that do not qualify for accelerated
allowances and, where an SLA election has not been made, it will
take the business at least 21 years to obtain full tax relief via
the general pool," said Mr Wherton.
"Other reliefs should be considered too. Do not forget that
expenditure on 'green' plant and machinery, including certain cars,
currently qualifies for immediate tax relief."
And he added: "Cash is vital to any business and maximising the
reliefs in the tax system will help the business to manage its tax
payments and direct these funds into working capital to achieve
growth and meet business objectives."
For more information about Crowe Clark Whitehill, please visit
their website here: www.croweclarkwhitehill.co.uk