With just over a month to go until a new tax year, it’s important to make time to review your current year finances and see what planning can be done to reduce your tax bill. One area we commonly advise on is large capital items. Big ticket purchases which will significantly help reduce your tax bill. Tax relief for big ticket items is given by way of capital allowances and this is an area which can get quite complex depending on what you are planning to purchase.

Step 1 – Review projected profits

Step 2 – Determine whether that big ticket purchase is required and if so, can it be made before the tax year end.

Step 3 – Make sure you understand what level of tax relief is available!

Big ticket items (known as plant and machinery) include equipment, machinery and business vehicles e.g. car, vans or lorries.

There is currently a £1m annual investment allowance (AIA) for plant and machinery. This allowance allows a business to write off the cost of these items in full against profits. It’s not just plant and machinery that qualifies but also integral features, such as fitted kitchens, alterations to install plant and machinery and any costs of demolishing plant and machinery. The cost of a vans also qualifies for the allowance.

What about cars?

Tax relief on cars is slightly more complicated and it depends on the type of car purchased to what level of tax relief is available (so check first before a purchase is made). A 100% allowance is available for new cars with CO2 emissions of 50g/km or less (this includes electric cars – on which there is no Benefit in Kind from April 2020 – so a double tax saving!).

The tax relief rate reduces to 18% for new cars where the CO2 emissions are between 50g/km and 110g/km. For new cars where the CO2 emissions are 110g/km or more, the tax relief rate drops even further to a minimal 6% rate.

Either way a review of profits, big ticket need and check of tax relief available within the next month can help the upcoming tax bills.

And of course any questions let us know.

TOA