In an effort to boost investment, in 2022 the Chancellor offered a super-deduction tax relief but it was only temporary and ended on 31st March 2023. Many larger companies took advantage quickly but by the time smaller businesses wanted to use it, it had gone!
There are now two other main allowances which you can offset against your trading profits when buying assets. We were told in the Autumn Statement 2023 that they are permanent - but with politics, we know there’s no such thing as permanent, so grab these whilst you can.
What are the latest tax reliefs for assets?
There are two ‘permanent’ reliefs - Annual Investment Allowance (AIA) and Full Expensing Relief.
Capital allowances are tax reliefs where you can reduce your profits if you own assets and can therefore pay less tax. For many years, this was set at 25% of the written down value of the assets, however now it’s far more generous and is 100% for certain assets.
In other words, if you spend money on eligible plant, machinery and equipment, you can reduce your profits that year by the full amount of the assets you have bought (excluding the VAT) and not have to spread it over several years.
For small companies making profits below £50,000, this means they would save tax equivalent to 19% of the purchase cost of the goods in that year. Larger companies will pay different rates at various profit levels, so will save more.
What assets can a business buy?
There are some differences between the two reliefs which mean it may be preferable to claim one before the other. Your accountant can advise you.
AIA generally allows for more assets such as plant, machinery, equipment, tools, fixtures and furniture.
You cannot claim these relies on motor vehicles, land and buildings or long-life machinery, but there are other reliefs instead for these assets.
Full expensing allowance is stricter in that it only applies to new assets, not second-hand.
How can I fund them?
Not many companies have large cash reserves to buy assets outright, so asset finance is a great tool to use.
The company needs to retain ownership of the assets so a hire purchase facility is best.
The tax savings you are making could pay towards the interest on the loan.
Speak to our funding team at Capitalise for the best asset finance deals around for your company.
You can also check your elgibility for asset finance with your Capitalise for Business account.
Anything else I need to know?
Speak to your accountant before you make any big purchases to check what reliefs are available. Keep records of invoices so you can add them to your tax return.
Companies with the strongest credit scores obtain the best interest rates on finance products, so understand more about how to keep your business credit score as high as it can be by using Capitalise for Business.
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Article originally published 29/11/2023. Updated on 08/02/2024.
