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Businesses from time to time have to purchase assets to continue running the business efficiently.
Assets may range from small items such as computer equipment through to large value items such as property, so in many cases the assets purchased may be quite significant in terms of value. Unsurprisingly the tax consequences of purchasing such assets can also be quite significant.
The first decision that should be made is who will own the asset! Should it be the business itself, a separate business or even an individual? In most cases businesses decide to buy their assets themselves. Whilst this is fine and offers the same tax relief as the other options, it does have the downside that if the business goes into liquidation, the assets as well as the business would be lost. It is therefore relatively common for another business to purchase the assets and lease them back to the main trading business. The lease cost to the trading business is tax deductible whilst the income in the leasing business is taxable.
Dependent upon the type of assets acquired the owner can also claim capital allowances, (which is the tax version of depreciation) on the assets purchased. This legislation has recently changed meaning that the owner is now able to claim full 100% tax relief on the costs of those assets up to the first £250,000 per annum. Any assets purchased over and above £250,000 can claim a 18% annual allowance against the value of those assets with further 18% allowances in subsequent years.
The annual investment allowance doesn’t apply to all assets however.
Cars can claim 8% (if C02 emissions exceed 130g/km) or 18% (95-130g/km) of the purchase price for tax purposes, although if the car has C02 emissions of less than 95g/km, you can make a claim of 100% capital allowances against the purchase of that vehicle in the first accounting year of ownership.
Energy efficient plant and machinery and water-saving technologies attract enhanced capital allowances of 100% in the year of purchase.
Fixtures and fittings: Although property itself does not attract capital allowances, an area which is often missed is that any in-built plant and machinery will attract such allowances provided they have not been previously claimed for in full. Such items may be in-built ventilation systems, air-conditioning or heating systems. A specialist surveyor will be able to identify and work with your accountant to make capital allowance claims in some unexpected situations.