‘Plan now for investment’, firms urged

North West firms are being urged to plan effectively for growth following proposals to reduce tax breaks for business owners who re-invest profits in their companies.

In June’s emergency Budget, Chancellor George Osborne announced measures to reduce the amount of tax relief companies can claim under what are known as capital allowances.

Currently, businesses are able to claim a ‘writing-down allowance’ (WDA) to gain tax relief on a percentage of their reinvested capital on items such as plant and machinery. In the year of the capital purchase, companies get an ‘annual investment allowance’ (AIA) enabling them to write-off a set amount of capital expenditure against taxable profits.

Both allowances are designed to encourage business growth by making it favourable for business owners to re-invest in their companies, rather than retain the majority of profits.

However, allowances for investments in plant and machinery will decline from 20 per cent to 18 per cent from April 2012, while the annual investment allowance will decline from £100,000 to £25,000.

As a result, experts at Moore and Smalley Chartered Accountants and Business Advisors are urging companies planning significant capital investments to consider the timing in order to maximise tax relief.

Tony Medcalf, Partner at Moore and Smalley, said: “Many companies plan their investment in items such as plant and machinery and other assets, many months, or even years, in advance. These changes, due to come into effect in 2012, are likely to have major implications on the amount of money businesses can save by making such investments.

“Companies planning to invest in new growth opportunities should think clearly about their timescales for such investments to ensure they make the most of potential tax savings. The timing of such decisions could literally save a company thousands of pounds, though bringing capital expenditure projects forward won’t work for every business.”

According to Tony the new rules mean businesses may choose to accelerate capital expenditure projects to benefit from the current higher rate of capital allowance as well as offsetting against a current higher rate of corporation tax.

However, Tony also believes that for some businesses the reduction in capital allowances for plant and machinery will be offset by the reduction in the main rate of corporation tax from April 2012. The reduction in annual investment allowances may be of minimal concern to larger companies, he added.