Capital allowances are an excellent tool in managing the tax position for businesses. However, you need to think ahead, because capital allowance rates are going to be reduced from April 2012.
Despite the negative growth figures for the last quarter of 2010, it seems that many businesses do have cash on their balance sheets, which they are likely to invest in the business as growth picks up.
If this investment is spent on fixed assets, then it is vital that businesses make the most of the available tax relief through capital allowances. From April 2012, the Annual Investment Allowance (AIA) is set to fall to £25,000 (from £100,000) and writing-down allowances (WDA) – which are particularly relevant to investment in buildings – are set to fall to 18% and 8% (currently 20% and 10%). So now is the time to ensure that levels of capital allowances are not only maximised but also used as effectively and efficiently as possible.
Business owners should remember that it is quite likely that their capital allowances, especially on property-related expenditure, may not have been used to the full in the past. It’s important to have a thorough review of past and present expenditure, as this can lead to significant additional tax savings and sometimes even cash tax repayments. Experience has indicated that it could result in an increase in eligible expenditure of up to 40%.
A review of a business’s capital allowances position will quickly identify areas that could bring the greatest immediate benefit. It will also put in place a system, along with other tax strategies, to enable the tax position to be managed proactively, which will assist with driving down the effective tax rate, thereby enabling business owners to concentrate on growing their ventures.