Time and date
CONSTRUCTION DIRECTORY
JCB Finance
Act now or lose £250,000 in tax relief
Act now or lose £250,000 in tax relief For businesses contemplating purchasing plant, machinery or commercial vehicles in the Spring they need to take careful note of their financial or tax year end in order not to lose out on up to £250,000 of potential tax relief available through the Annual Investment Allowance (AIA). The clock is now ticking for those companies with a 31st March year end or unincorporated businesses with a tax year ending 5th April 2014 because, after these dates, the available AIA drops to £187,500 before finally reverting to £25,000 on 1st January 2015. Also be aware that the assets purchased must be available for use in the business before the cut off dates and unspent allowances can’t be carried forward. Given the lead times of some plant and machinery, from order to delivery, this needs to be carefully factored in to buying plans.
Announced by the Chancellor in December 2012 many businesses are still not aware of this important tax incentive which allows 100% tax relief in the first year. The AIA was designed to encourage businesses to annually invest up to £250,000 in plant, machinery, commercial vehicles and even fixtures such as a generator (new or used). Depending on the business’ rate of tax it is an open invitation to secure the equivalent of a 20% to 45% subsidy. Better still – if you acquire the plant via a Hire Purchase agreement the acquisition, for tax purposes, is treated as if cash had been paid.
For a sole trader or partnership, making sufficient profits, investing £250,000 in plant and paying 40% income tax could be the equivalent of Her Majesty's Revenue and Customs (HMRC) paying the £25,000 deposit and the first annual payments of £75,000 (net of interest) on a three year agreement! For a 20% corporation tax payer it equates to HMRC paying for the same £25,000 deposit plus £25,000 of the first year's payments on the same three year HP deal. If you pay higher rates of tax you could save even more. If you have not already planned how to maximise the benefit speak to your accountants now.
Confusion!
Unfortunately it seems that some financial advisors have been slow in coming to terms with the new rules and some tax saving opportunities have already been lost. In addition there seems to be some confusion in the Plant Hire sector with many Plant Hire businesses being advised that they are not eligible for the AIA. The seeds of this confusion may have been sown in April 2008 when First Year Allowances (FYA) were replaced by the AIA. Before 2008 many accountants had been caught out by HMRC disallowing FYA claims made on behalf of Plant Hirers because the business was supplying non-operated plant (plant supplied with an operator could claim the full FYA so agricultural contractors are OK). This ruling was not carried over to the AIA so all businesses, including Plant Hire businesses, can claim the AIA – the only exceptions are Mixed Partnerships or Trusts (i.e. those in which a company is a member) – this has been verified by HMRC.
Timing is critical
Get the timing and/or the amounts wrong and your business could either miss out on available tax relief or worse still, end up paying far more tax than required.
However, proper advice is needed because the above scenarios are relatively simple to interpret. Different financial years that straddle the tax year and/or the 1st January 2013 and 2015 will result in very complicated calculations that will result in a lesser AIA being granted in that financial year. The chart below illustrates this by showing four different financial year end companies and how vital it is to spend the right amount within the right periods in order to maximise the tax benefits*.
If your business is contemplating purchasing plant in the near future, there are some strong tax-based and cash flow arguments to carefully plan plant purchases before the end of your financial year and certainly before 1st January 2015, so that you can maximise on the available £500,000 tax relief.
Enquire
*Important Information: JCB Finance is not a tax or financial advisor - always seek advice from your accountant or finance director, because every business’ circumstances are different. Businesses should not make investment decisions purely on a tax basis - there should be a compelling business case for the investment.
Act now or lose £250,000 in tax relief For businesses contemplating purchasing plant, machinery or commercial vehicles in the Spring they need to take careful note of their financial or tax year end in order not to lose out on up to £250,000 of potential tax relief available through the Annual Investment Allowance (AIA). The clock is now ticking for those companies with a 31st March year end or unincorporated businesses with a tax year ending 5th April 2014 because, after these dates, the available AIA drops to £187,500 before finally reverting to £25,000 on 1st January 2015. Also be aware that the assets purchased must be available for use in the business before the cut off dates and unspent allowances can’t be carried forward. Given the lead times of some plant and machinery, from order to delivery, this needs to be carefully factored in to buying plans.
Announced by the Chancellor in December 2012 many businesses are still not aware of this important tax incentive which allows 100% tax relief in the first year. The AIA was designed to encourage businesses to annually invest up to £250,000 in plant, machinery, commercial vehicles and even fixtures such as a generator (new or used). Depending on the business’ rate of tax it is an open invitation to secure the equivalent of a 20% to 45% subsidy. Better still – if you acquire the plant via a Hire Purchase agreement the acquisition, for tax purposes, is treated as if cash had been paid.
For a sole trader or partnership, making sufficient profits, investing £250,000 in plant and paying 40% income tax could be the equivalent of Her Majesty's Revenue and Customs (HMRC) paying the £25,000 deposit and the first annual payments of £75,000 (net of interest) on a three year agreement! For a 20% corporation tax payer it equates to HMRC paying for the same £25,000 deposit plus £25,000 of the first year's payments on the same three year HP deal. If you pay higher rates of tax you could save even more. If you have not already planned how to maximise the benefit speak to your accountants now.
Confusion!
Unfortunately it seems that some financial advisors have been slow in coming to terms with the new rules and some tax saving opportunities have already been lost. In addition there seems to be some confusion in the Plant Hire sector with many Plant Hire businesses being advised that they are not eligible for the AIA. The seeds of this confusion may have been sown in April 2008 when First Year Allowances (FYA) were replaced by the AIA. Before 2008 many accountants had been caught out by HMRC disallowing FYA claims made on behalf of Plant Hirers because the business was supplying non-operated plant (plant supplied with an operator could claim the full FYA so agricultural contractors are OK). This ruling was not carried over to the AIA so all businesses, including Plant Hire businesses, can claim the AIA – the only exceptions are Mixed Partnerships or Trusts (i.e. those in which a company is a member) – this has been verified by HMRC.
Timing is critical
Get the timing and/or the amounts wrong and your business could either miss out on available tax relief or worse still, end up paying far more tax than required.
However, proper advice is needed because the above scenarios are relatively simple to interpret. Different financial years that straddle the tax year and/or the 1st January 2013 and 2015 will result in very complicated calculations that will result in a lesser AIA being granted in that financial year. The chart below illustrates this by showing four different financial year end companies and how vital it is to spend the right amount within the right periods in order to maximise the tax benefits*.
If your business is contemplating purchasing plant in the near future, there are some strong tax-based and cash flow arguments to carefully plan plant purchases before the end of your financial year and certainly before 1st January 2015, so that you can maximise on the available £500,000 tax relief.
Enquire
*Important Information: JCB Finance is not a tax or financial advisor - always seek advice from your accountant or finance director, because every business’ circumstances are different. Businesses should not make investment decisions purely on a tax basis - there should be a compelling business case for the investment.
