Capital Allowances – Creating Faster Tax Relief?
If your business spends more than the Annual Investment Allowance in a year on plant and machinery then you should seriously consider making “Short Life Asset” elections. This election applies to most assets apart from cars (but adapted learner driver cars for instance are OK) and integral features like electrics. Being a bit of a misnomer, there is no requirement for the expected life span of the asset itself to be of a particular length.
What is the benefit?
- If you sell or scrap the asset within eight years of purchase, you will receive a deduction in the year of disposal for the remaining tax written down value on that Short Life Asset Pool.
- If it was in the main pool instead, you would just receive on-going capital allowances each year on the remaining value at a much slower rate.
- If the asset isn’t disposed of within 8 years, it is transferred to the general pool, and there will have been no difference in the overall capital allowances over the period.
It’s a no-lose situation – unless of course you sell the asset for more than the tax written down value before Year 8!
When should you make the election?
- If your spend exceeds the AIA, and
- If you expect the asset to depreciate faster than the AIA/WDV available on it, and
- If might be sold or become defunct or scrapped within 8 years
Incidentally, HMRC should accept that any asset with an expected useful life of less than two years is not plant in any case, and can be relieved against the profit and loss account.
For more information and a no obligation discussion please contact Rob Durrant-Walker