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An appropriate computer package might be worth considering,
to aid concise and effective record-keeping.
You may also wish to consider the voluntary cash basis for
calculating taxable income for small businesses, which allows
eligible self-employed individuals and partnerships to calculate
their profits on the basis of the cash that passes through their
business. Businesses are eligible if they have annual receipts
of up to £150,000 and they will be able to continue to use the
cash basis until receipts reach £300,000. This is something we
should discuss with you in detail if you are eligible. Allowable
payments include most purchases of plant and machinery, when
paid, rather than claiming capital allowances.
Unincorporated businesses are able to choose to deduct certain
expenses on a flat rate basis. However, this is worth discussing
before opting for it, as the flat rates are not generous.
Capital allowances
‘Capital allowances’ is the term used to describe the deduction
we are able to claim on your behalf for capital expenditure such
as business equipment, in lieu of depreciation.
Annual Investment Allowance (AIA)
The maximum annual amount of the AIA is £200,000. This
means up to £200,000 of the year’s investment in plant and
machinery, except for cars, is allowed at 100%. The AIA applies
to businesses of any size and most business structures, but
there are provisions to prevent multiple claims. Businesses are
able to allocate their AIA in any way they wish; so it is quite
acceptable for them to set their allowance against expenditure
qualifying for a lower rate of allowances (such as integral
features) – see more on this below.
Enhanced Capital Allowances (ECAs)
In addition to the AIA, a 100% first year allowance is also
available on new energy saving or environmentally friendly
equipment. Where companies (only) have losses arising from
ECAs, they may choose how much they wish to carry forward
and how much they wish to surrender for a cash payment (tax
credit is payable at 19% but subject to limits).
A separate ECA scheme is available for new electric and low
carbon dioxide (CO
2
) emission cars (up to 75g/km until
31 March 2018 and up to 50g/km from 1 April 2018) and
new zero emissions goods vehicles (up to 31 March 2021
(corporates) or 5 April 2021 (others)). They still qualify for the
100% first year allowance, but do not qualify for the payable
ECA regime.
Writing Down Allowance (WDA)
Any expenditure not covered by the AIA (or ECAs) enters either
the main rate pool or the special rate pool, attracting WDA at
the appropriate rate – 18% and 8% respectively. The special rate
8% pool applies to higher emission cars, long-life assets and
integral features of buildings, specifically:
• electrical systems (including lighting systems)
• hot and cold water systems
• space or water heating systems, powered systems of
ventilation, air cooling or purification and any floor or ceiling
comprised in such systems
• lifts, escalators and moving walkways
• external solar shading.
For most other plant and equipment, including some cars (see
below), the main rate applies.
A WDA of up to £1,000 may be claimed by businesses, where
the unrelieved expenditure in the main pool or the special rate
pool is £1,000 or less.
Enterprise Zones
The Enterprise Zones in assisted areas qualify for enhanced
capital allowances. In these areas, 100% First Year Allowances
will be available for expenditure incurred by trading companies
on qualifying plant or machinery.
Cars
Currently for cars purchased with CO
2
emissions exceeding
75g/km (50g/km from 1 April 2018), the main rate of
18% applies. However, cars with CO
2
emissions above
130g/km (110g/km from 1 April 2018) will be restricted to the
special rate of 8%. For non-corporates, cars with a non-business
use element continue to be dealt with in single asset pools, so
the correct private use adjustments can be made but the rate of
WDA will be determined by the car’s CO
2
emissions. Remember,
cars do not qualify for the AIA.
Buildings
When a building is purchased for business use, it may be
possible to claim capital allowances on plant elements contained
therein, eg. air conditioning, subject to certain conditions. A
joint election may need to be made with the vendor. Please
contact us for further details and advice prior to any purchase.
Research and Development (R&D)
investment
Tax relief is available on R&D revenue expenditure incurred
by companies at varying rates. The current rates of relief are
as follows:
• for small and medium-sized companies paying corporation
tax at 19%, the effective rate of tax relief is 43.7% (that is
a tax deduction of 230% on the expenditure). For small and
medium-sized companies not yet in profit, the relief can
be converted into a tax credit payment effectively worth
33.35% of the expenditure
• an ‘above the line’ credit exists for large company R&D
expenditure. This is known as the R&D Expenditure Credit
(RDEC) scheme and the credit has increased from 11% to
12% for expenditure incurred on or after 1 January 2018.