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Does your business undertake a significant amount of capital expenditure? If it does then it may be beneficial for you to take into consideration the timing of your purchases in order to claim certain tax reliefs. What are capital allowances? When investing in building-related capital expenditure, plant and machinery and other qualifying assets, these purchases may give rise to tax reliefs for your business. The major criteria being that the purchases will have to be ‘wholly and exclusively’ for the business and normally that the item performs a function e.g. computer equipment, fire safety systems, or other electronic equipment. Capital allowances are given for tax purposes and are granted instead of allowing depreciation. Depreciation is an accounting principal which reflects the reducing value of assets over time. What is AIA? AIA stands for Annual Investment Allowance. AIA allows a business to claim the whole purchase costs of certain assets in the first year of ownership, rather than over a period of time. The annual investment allowance will allow businesses to claim 100% first year relief of capital expenditure on qualifying items up to £25,000 (and as of January 2013 this amount was increased to encourage further capital expenditure by companies). How much will the threshold increase? From 1 April 2012, the AIA limit was reduced from the previous amount of £100,000 to the current rate of £25,000 meaning that any capital expenditure on plant and machinery up to the value of £25,000 would be eligible for full 100% AIA relief. This threshold of £25,000 was increased from 1 January 2013 to £250,000 for the next two years. What are the planning opportunities? The main benefit of timing your capital expenditure correctly is that it will enable your business to claim certain tax reliefs and ultimately reduce the amount of corporation tax that your business owes HMRC or at least defer any tax payable. If you would like more information about capital allowances or how Wisteria could assist you with your business’s corporation tax returns then please call 020 8952 0140 or email [email protected] where one of Wisteria’s tax specialists will be more than happy to help.
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