We’re now in the final year of £1m Annual Investment Allowances (AIA) with them reverting back to £200,000 next year. However, it’s not quite as straight forward as that and your tax allowances might already be reducing. Due to HMRC transitional arrangements companies with different financial year ends from calendar year, will immediately start to see their allowance reduced significantly once they go through their 2020 year end.
So what does that mean? Well, if you’re considering buying assets during 2020 it would make sense to consider the timing aspect to ensure you don’t miss out on the full value of the tax relief available. AIA allows businesses to fully offset any business-related assets against their taxable profits up to £1m. This could currently save a business £190,000 p.a.
This includes assets purchased through Hire Purchase and Loan facilities.
Any equipment/ machinery, you use for business operations, including IT
Commercial vehicles (cars are disallowed)
So called ‘integral features’ of your premises, which includes things like air con, heating systems, lighting systems and lifts/ mobility aids.
Certain building fixtures, such as kitchen fittings, bathroom suites and fire alarm systems
Last year we helped one of our haulage clients purchase several new trucks at a cost of £550,000. At their year end they had £550,000 of AIA to offset against their taxable profit. They made in excess of this amount in profits so they could use the full £550,000 allowance saving themselves Corporation Tax at 19% on this amount = £104,500
The client was considering waiting to make this investment but thought it best to use these generous tax allowances before their year-end. The client originally told our Account Director that he was saving up for the deposit required. We arranged the facility without a deposit and a VAT deferral meaning the client’s cash flow was unaffected by the transaction and the trucks could start to handle contracts that immediately added to the clients’ profitability. It was a ‘no brainer’.
With the low interest rate, we negotiated, coupled with the tax advantages, the client’s net cash out lay, over the 5 year term, will be less than the original capital cost of the trucks. Then there’s the additional revenue derived from the contracts the new trucks could fulfil. Result!
The client maximised their tax allowances ahead of their year end and can maximise the further AIA on any 2020 purchases.
So, if you’re considering investing in new machinery, equipment or vehicles make sure you use your tax allowances to best effect. If you go through year end without using them, you can never claim them again. It really is ‘use them or lose them’. As we mentioned above, we can access you low start, competitive funding options that will not hit your cashflow. Please don’t think you need to make a significant investment in assets. Make the most of your allowances now and acquire the assets you need in your business now to make you more profitable.
Each companies’ situation is unique but if you’d like any advice on how to best utilise your allowances please don’t hesitate to call us on 0161 633 2548.