By Mel Hackney

There have been some pretty significant changes to capital allowances recently, and it’s important to consider these when making investment decisions.

A capital allowance is a deduction from trading profits which is allowable for tax, therefore reducing yours or your company’s tax liability.

Firstly, from October 2018, capital allowances for structure and buildings is available. Businesses that incur qualifying capital expenditure on structures or buildings used for qualifying activities will be able to claim an allowance to encourage investment in the construction of new structures and buildings and the improvement of existing ones.

This will be a deduction from taxable profits at an annual rate of two percent.

In addition, the Annual Investment Allowance (AIA) has been temporarily increased from £200,000 to £1,000,000 from 1 January 2019 to 31 December 2021.

The AIA is a 100 per cent upfront deduction from taxable profits that applies to qualifying expenditure on plant and machinery up to a specified annual limit or cap. As such this increase could lead to significant savings.

In order to maximise the benefit from this it is crucial to plan carefully for the purchase of capital items as, depending on the timing of the year end of the business, there are limitations which sit around these maximum allowances in order to account for transitional rules.

If you are thinking of making a capital investment of any type, give us a call and we can advise on what reliefs may be available, plus the optimal timing of the expenditure.