Tax advantages of buying business equipment
Tax write offs for business equipment
Having decided that investing in new technology, a new van or other business equipment will make a positive difference to your bottom line profits, the next question to ask is – what difference will this make to my tax bill?
As long as the asset you are buying qualifies, the maximum tax write off is determined by the Annual Investment Allowance (AIA) rules.
Currently, you are allowed to write off 100% of the purchase cost up to a value of £200,000 against your taxable profits for the accounting year in which you make the purchase.
Assets that are specifically excluded from the AIA are:
- Items you already owned for another reason before you started using them in your business
- Items given to you or your business
Also, you cannot claim the AIA in a final period of trading.
This tax allowance is particularly useful if you are a self-employed business owner and paying income tax at the higher 40% or 45% rates. A qualifying asset purchase costing £200,000 would reduce your self-employed income tax bill by a significant amount.
For example, a self-employed sole trader, James, with profits of £220,000 and investing in qualifying equipment of £200,000 during 2017-18, would see their income tax bill reduce from £85,200 to £1,700.
In addition to the income tax savings, James’s graduated Class 4 NIC payment would also reduce, from £6,963.44 to just £1,213.44.
Not everyone has sufficient surplus funds to buy a £200,000 asset outright, of course, but even if the purchase cost is financed by a loan or put on hire purchase then the full allowance is usually available. In fact, in this scenario you will be able to offset any interest charges you incur against your tax as well.
The AIA is a generous allowance and whilst it is inadvisable to let the tax tail wag the proverbial dog, if there is a strong indication that a proposed investment will make a positive difference to your business then the tax incentive is a useful bonus.
Finally, as with all tax planning, taking a hard look at the figures prior to any firm commitment to invest is paramount.
Call THP efficient tax planning and returns
Please call if you are planning an acquisition of this nature in the near future – it is essential if you want to get all your “tax ducks” neatly in a row. Here at THP Chartered Accountants we can assist you with your merger and acquisition, or purely through helping you to reduce your corporate tax bill. Why not call us today on 0800 6520 025.