As any practice owner will know, the costs of properly equipping the business are ever-increasing, so any savings that can be made against tax are doubly welcome. There are two developments recently that make this an area well worth looking at.
Plan your capital expenditure
The Government has recently increased the annual investment allowance (AIA) from £25k to £250k. However, there are pitfalls for the unwary. For example, the £250k is an annual allowance as from January 1, 2013. If your financial year ends, say, on June 30, 2013,
you will only get £125k allowed for any capital expenditure in the six months to June 30, together with £12,500 for the previous six months. It is therefore important to seek advice on the proposed timing of any significant capital expenditure. The £250k annual investment allowance is in place for two years so this is the window within which to plan any substantial outlay.
Remember that annual writing-down allowances available for expenditure over and above the AIA ceiling are very limited – 18 per cent per annum for dental equipment and nine per cent per annum for integral features such as heating systems and so on. Furthermore, the writing-down allowance is based on each year’s written down value thus stretching the timing for total relief over a period of many years – similar to how long it takes to pay off a credit-card debt if you only make the minimum payments.
Going back to the June 30, financial year example, in the year ending June 30, 2015, you would get relief of £125k for any capital expenditure arising in the first six months to December 31, 2014 but only £12,500 in the last six months to June 30, 2015. So the only accounts year in which you could get the full £250k allowance would be the year to June 30, 2014.
Of course, judicious changes to your accounting date may be possible to maximise the relief you actually obtain. It is important that you seek professional advice.
Land and buildings
A hot topic at present is the maximisation of capital allowance tax claims on land and buildings. If the business is operated from premises that you own, the chances are that there is a claim just waiting to be made.
Those who qualify for this claim are companies, partnerships or individuals who own buildings in commercial use. This includes properties that are being let to other businesses.
The basis for the claim is that things such as electrical systems, hygiene facilities and kitchen equipment (and a long list of other items) that would normally be regarded as being part of the structure of the building do, in fact, qualify for capital allowances available on plant and machinery. Often, this claim has not been made because it has not been felt necessary or economic to separately quantify the amount involved.
However, a number of large companies have now started offering no-win-no-fee services to put forward these claims with the result that HMRC is making moves to tighten up the rules and reviewing claims in more detail. However, successful claims are still possible and now is a good time to look at this in order to generate some much-needed cash in this time of austerity.
In a recent case, a two principal dental practice was able to claim an additional £50k of capital allowances with an immediate cash return of £7,000 and, potentially, a further £16k to come.
These claims can also have value beyond your ownership of the building. This is because, when you come to sell the building, the buyer takes on any unused amount of capital allowances attributable to the property. However, if the claim has not been made, the new owner will not be able to obtain any benefit which could affect the price he is ready to pay.
Research and development
Her Majesty’s Revenue and Customs is keen to give money away to businesses carrying out research and development. This operates by allowing businesses to claim up to 225 per cent as a deduction in respect of amounts qualifying as research and development expenditure.
This is clearly a valuable relief and is available to considerably more businesses than one might initially think.
Furthermore, if the business is unable to benefit directly from the deduction (for instance, it might be a business start-up with small profits) a claim can be made to HMRC to receive cash of 11 per cent of the research and development expenditure.