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Accelerated tax relief on new business assets

For a two-year period practices can offset expenditure of up to £250,000 against tax in the year of purchase, explains Russell Finn.

Tax relief in the year of purchase on up to £250,000 spent on equipment (Image: iStock)
Tax relief in the year of purchase on up to £250,000 spent on equipment (Image: iStock)

Will your practice need to spend significant sums on updating capital assets such as equipment, furniture and the surgery building, within the next few years?

When profits need propping up, it can be tempting to postpone such expenditure for as long as possible.

However, by going shopping for what you need sooner rather than later, the practice could secure significant cash flow benefits through writing off much or all of the cost against tax in the year of purchase.

This because of an increase to a type of business tax relief called the annual investment allowance (AIA)  which was increased from £25,000 a year to £250,000 a year on 1 January 2013.

The AIA is to stay at £250,000 until 31 December 2014 and will then revert to £25,000.

Depreciation allowance

The AIA is a type of capital allowance: the depreciation that HM Revenue & Customs (HMRC) allows as a tax deduction.

With standard capital allowances, businesses writing off capital expenditure against tax is a gradual process over several years.

With the AIA you can include the total cost of the assets you buy as a tax deduction in the year of purchase up to the current limit.

The AIA covers both purchases of assets bought through the practice and in the each partner’s individual capital (business assets) account.

Pro rata tax relief

As the increase in the AIA was brought in from 1 January, rather than at the beginning of the tax year on 6 April, the tax relief apply pro rata for practices with accounting years straddling previous periods when the AIA was lower.

Pro rata relief will apply to expenditure in accounting years straddling the period after 31 December 2014 when the AIA has reverted to £25,000.

Annual investment allowance limit
6 April 2008 to 5 April 2010 6 April 2010 to 5 April 2011 6 April 2012 to 31 December 2012 1 January 2013 to 31 December 2014 From 1 January 2015
£50,000 £100,000 £25,000 £250,000 £25,000

What the AIA covers

The AIA applies to new ‘plant and machinery’ assets. This includes most items of equipment practices buy that they will use for more than a year - to medical equipment, computers and tablets, desks, filing cabinets and so on.

The allowance also includes expenditure on systems that are an integral feature of business premises (including new extensions), for  example:

  • Electrical systems (including lighting systems)
  • Cold water systems
  • Space or water heating systems; powered systems of ventilation; air cooling or air purification, and any floor or ceiling that are part of in such systemsLifts and escalators
  • External solar shading
  • Any changes to the building required to install the above.

There is a full list of the allowable items on HMRC’s website.

Major impact

Normally, if a practice has used up its AIA, only 18% of plant and machinery or 8% of integral features are eligible as an annual deduction for tax purposes.

So the AIA at £250,000 will have a major impact on any equipment purchase or surgery refurbishment that takes place during the two-year period to 31 December 2014 and will help to avoid cash flow difficulties.

However, the AIA does not apply to GPs’ own cars regardless of any business use of them. But it does apply to practice vans and personal motor bikes.

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