Timing of Equipment Purchases

My business has not done very well this year, but I’ve just landed a big contract, so I think we’ll see bumper profits next year. I’m going to have to buy more equipment though, as I’ll have to take on extra staff. I think I’m right in saying that I’ll get tax relief for the equipment in the year that I buy it. So should I put off buying it until my bumper year, to keep profits down?

1st March 2012

You are quite right- capital allowances (tax relief for equipment, vans, computers etc) are typically awarded in the year of purchase or the year the asset is brought into use.

You have a few options and they have very different consequences:

  • Buy equipment in the poorer year and start using it – capital allowances awarded in poorer year
  • Buy equipment in the poorer year and start using it – capital allowances awarded immediately, but you can opt to carry the expenditure over to the bumper year
  • Buy equipment in the poorer year and do not use it until the bumper year – capital allowances awarded in the bumper year
  • Buy equipment in the bumper year – capital allowances awarded in the bumper year

However, you should be aware that the maximum relief available on capital expenditure is dramatically reducing from £100,000 to just £25,000 from April 2012. Relief will still be available on expenditure above £25,000 but only at 18% per annum on a reducing balance basis; rather than the 100% you are expecting. Therefore, you must bear this in mind if you are planning to defer the expenditure and you are planning to spend over £25,000.

Your local TaxAssist Accountant would be happy to discuss this with you in more detail and calculate the estimated tax implications of the various options.

By Jo Nockels

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