Getting the maximum tax benefit from capital spending often involves a balance of considerations, and timing can be critical to the outcome. We look here at two timing issues that could impact your business.
Last chance opportunity to use Covid-19 extended loss carry back rules.
Strategically timed capital expenditure now, in tandem with the extended loss carry back rules, may have the potential to create or enhance a trading loss, generating a tax refund for your business. Current rules provide particular incentives for capital spending. The temporary higher level of Annual Investment Allowance (AIA) is available both to companies and unincorporated businesses, whilst the 130% super-deduction and 50% special rate allowance are available to companies.
The extended loss carry back rules apply to trading losses made by companies in accounting periods ending between 1 April 2020 and 31 March 2022. For unincorporated businesses, it’s available for trading losses made in the tax years 2020/21 and 2021/22.
If you are planning capital expenditure, please don’t hesitate to contact us to discuss the options on timescale. We can help you decide if it would benefit your business to accelerate capital spending to bring it inside the relevant extended loss carry back window.
Reprieve for the temporary higher AIA limit.
The AIA limit increased to £1 million from January 2019, and was scheduled to drop back to £200,000 from 1 January 2022. Autumn Budget 2021, however, extended it one last time. The £1 million AIA annual limit is now set to remain in place until 31 March 2023. In terms of timescale, this sets it on a par with the super-deduction regime available to companies: the two now both finish at the same time.
Extending the availability period certainly gives businesses more time to take advantage of the enhanced provisions. But if planning major capital expenditure, it’s worth taking stock now of when the expenditure would be best made. The accounting year end is a key component in any decision here.
We recommend an early discussion to make sure that the timing of your purchase allows you to maximise the tax benefits available. Complex transitional calculations will be needed when the super-deduction comes to an end, and when the AIA drops back to its original level. It will be important to factor these into your planning. We should be pleased to advise further here.