The new capital allowances regime is more generous than the old one, but there are some “traps for the unwary”, says Tax Tips and Advice. Since April 2008, instead of getting tax relief for capital expenditure over several years, you can claim it in full for any expenditure on equipment (except cars) as long as the total does not exceed £50,000 in any one accounting year.
This £50,000 limit is called your annual investment allowance (AIA). Should you exceed it, the excess is “pooled” and the relief spread over several years – and this is where the “trap” arises.
If equipment becomes part of the building, for instance an electrical system, it is classed as an “integral feature” and you will only get tax relief at 10% a year, rather than the 20% for other equipment, eg, computers.
So if you spend £20,000 on computers in April and £45,000 on electrics in October, make sure you pool £15,000 of the computer cost rather than £15,000 of the electrical cost – that way tax relief will be given at 20% rather than 10%.
“Choosing the right asset to come within the AIA has doubled your rate of tax relief.”