As another financial year draws to a close, you might be wondering if now’s the time to make a last-minute capital purchase.
No matter how much money your business is turning over, purchasing new equipment is a big call and one that shouldn’t be solely dictated by the time of the year. Depending on the industry you’re in, machinery can cost tens – or even hundreds – of thousands of pounds, and along with operational and maintenance costs, a single purchase could significantly alter your bank account and balance sheet.
That being said, if you know you need new machinery, there is an argument for making the purchase before the accounting year ends.
Why Timing Your Purchase Matter
With a plan in place to purchase new equipment, it makes sense to incur the expense before the accounting year ends. That way you’ll receive the tax relief one year earlier than if you were to wait until the new accounting year begins.
An expense incurred entirely for business purposes can be deducted from your income, lowering your taxable profit, and in turn lowering the amount of tax you will be required to pay.
Which items are eligible?
Capital purchases are assets that offer a benefit to your business lasting more than a year. In addition to new machinery, you can also include computers, printers, smartphones, and tablets.
What’s more, other necessary business-related purchases such as print cartridges, stationery, web design, logo design, or office furniture should be ordered prior to the end of the accounting year to ensure you benefit from the earlier tax relief.
However, it’s vital that these purchases are made as part of a wider business plan, and not as a tax saving gambit. Otherwise, you run the risk of depleting funds and causing cash flow problems in exchange for superfluous items.
What Does HMRC Say?
HMRC offers a definition of ‘plant and machinery’ for items on which you can claim capital allowances. This covers a wide range of items, and the costs associated.
Using the Annual Investment Allowance (AIA), you can deduct the full value of a qualifying item from your profits before tax. You can claim AIA on most plant and machinery up to the AIA amount.
What doesn’t count as plant and machinery?
As per the HMRC website, you cannot claim capital allowances on:
- Things you lease – you must own them
- Buildings, including doors, gates, shutters, mains water and gas systems
- Land and structures, eg bridges, roads, docks
- Items used only for business entertainment, eg a yacht or karaoke machine
And you can’t claim AIA on:
- Items you owned for another reason before you started using them in your business
- Items given to you or your business
Always Seek Advice
These allowances can change from financial year to financial year, so it’s vitally important that you monitor the situation closely, or seek expert advice before making a significant business purchase.
We recommend sitting down with your accountant and planning the purchase of your next piece of machinery to ensure you see the full tax benefit.
Need Some Advice? Let’s Talk
Saint & Co has long worked with businesses operating in industries reliant upon heavy machinery, so we know a thing or two about planning and making major purchases.
If you’re not quite sure if and when to pull the trigger on a new piece of equipment, we can guide you through the important considerations, and explain the various tax implications.
Simply fill out our contact form, or call us on 01228 534371 to get started.