20 Jul Don’t forget capital allowances!
The tax man may be more generous than you think! If you’re a sole trader, partnership or limited company you can claim a tax allowance known as a capital allowance.
When you buy items of equipment and tools for your business, typically items that will be utilised over a period of time, you cannot claim them as a business expense in your accounts. However, you may be able to claim capital allowances. These items are usually regarded as business assets and may include computer equipment, machinery, furniture and even vans and cars. There are various forms of capital allowances and the rates available will vary depending on the specific items of expenditure and dates of purchase.
Your business accounts will typically only cover a 12 month period and assets of the business will be used for a longer period so they need to be treated differently. The tax man allows you claim ‘capital allowances’ for these items which allows you to deduct a proportion of the cost from your taxable profits and reduce your tax bill. Adjustments for personal use of any asset is usually required.
The most useful capital allowance for small businesses is the ‘Annual Investment Allowance’ (AIA) which enables most businesses to claim 100% of the cost of assets against tax, up to an annual limit of expenditure of £200,000. This limit will be reduced to £25,000 from April 2012 so it’s wise to plan ahead carefully when considering new investment. Cars are excluded from the AIA.
Having just saved a new client a significant amount of tax utilising capital allowances not previously claimed, it is important that these allowances are considered and utilised wherever possible. Always consult your accountant for professional advice.