Does your business invest in equipment and plant each year?

From April 2008 a new "Annual Investment Allowance" (AIA) was brought in to replace first year allowances on assets purchased for business purposes. The first advantage of the new allowance, compared to the old rules, is that it provides 100% tax relief for the qualifying expenditure in the period the expenditure is incurred. A second benefit is that there are no size restrictions on which businesses are entitled to the relief. The main downside of the new allowance is that the amount of allowance available is capped, currently at £50,000 per annum.

Small firms (Typically turnover less than £5.6 million) spending more than £100,000 per annum on plant and machinery will be worse off under the new allowance, as will "Medium sized" firms (Typically turnover up to £22.8 million) spending more than £125,000.

A couple of things to note are;

• Groups of companies or companies or businesses under common control may only be entitled to one allowance, although they can select how to allocate it to maximise their tax relief.
• Partnerships with corporate partners will not be entitled to the new annual investment allowance.
• Qualifying plant and equipment does not include cars, but vans will be entitled to the allowance.
• The new allowance is not available in the period when the business ceases to trade.

However with careful planning it may be possible to overcome these issues. Where expenditure incurred after April 2008 exceeds the available AIA limit it still gets some tax relief at 20% or 10% in the first year, depending on the type of asset.

Tip: You may wish to consider carefully plans to invest in capital assets. In some cases it may be more beneficial both commercially and from a tax point to lease the assets and ensure 100% relief.

Tip: If a partnership does have a corporate partner then it is worth reviewing whether action should be taken to restructure business interests, or ensure that the company holds all of the assets.

Tip: Certain equipment, which is included on the Government approved list of energy or water efficient items, can still attract a 100% allowance, called an enhanced capital allowance (eca). The eca is available whether or not the business has used its AIA cap for the year. Its worth checking on the eca website (www.eca.gov.uk ) whether an item of equipment qualifies before you buy it.

We can help

Gone are the days when tax changes were only announced once a year. So far in 2008 we have been told about Entrepreneur's Relief in January, a package full of changes within the March Budget, a U turn for low earners in May, further changes when the Budget proposals become law in July and only recently we've been told about a Stamp Duty Land Tax holiday for houses under £175,000. If that wasn't enough we still have Alastair Darling's pre-budget report to look forward to, let alone the daily changes appearing on HM Revenue & Customs website.

We can guide you through the constant changes to the tax laws and help you to pay much less tax.

So if you would like to discuss ways in which we can help you to make tax savings, or if you would like to discuss any of the issues identified in this edition of ‘Pay Less Tax' please do not hesitate to contact us.