Spending money - Maybe you should put it off to next year?

If you are planning a major investment in plant and equipment for your business in the next few months, you may be better of doing it after 6 April 2008.

The reason for this is that the current rules governing the tax relief that businesses receive on expenditure on plant and equipment are set to change from April 2008 – for the better!.

What will be different?

Currently businesses can only write off against profits a certain percentage of the amount spent on the plant and machinery in the year it was purchased.

The rules around this are quite complex and the percentage varies depending upon what has been purchased and by what type of business. However the maximum amount that can be clamed is 50% of the expenditure.

The rest of the amount spent is written off against your profits in subsequent tax years at a rate of 25% per year.

Luckily HMRC are reducing this complexity as well as being rather more generous.

From April 2008 you can claim 100% of any costs on plant and machinery in the year that you bought the items. This is up to a maximum of £50,000.

So what is plant and equipment?

Well there is no statutory definition but for guidance purposes the following can be taken to mean plant and equipment:

‘An asset is plant or equipment if it is used for carrying on the business and is not stock in trade, the business premises or part of the business premises.’

So examples include tools, ladders, computers, furniture etc. but not cars, long life assets or assets for leasing.

Elaine is the founder of www.CheapAccounting.co.uk which offers accounting services starting at a fixed monthly fee from just £9.99 to sole traders, partnerships, small limited companies and in particular start up businesses. With over 20 years experience in accounting and IT she is well placed to businesses on their accounting matters.