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Posts archive for ‘Accounting’

7th November 2017

Capital Allowances – whether to claim or not?

Filed Under: Tax, Accounting

The most common forms of Capital Allowances available on plant and machinery are currently Annual Investment Allowance (AIA),   of up to £200,000 per annum and Writing Down Allowance (WDA), set at 18% per annum.  But there are times when a claim may not be tax efficient.

Wasted personal allowances

Sole trader – There is no compulsion to claim all of the allowances that one is entitled to, since one can disclaim all or part of the allowances due. It is not therefore usually sensible to claim relief where the remaining profit arising would in any event be covered by personal allowances. Best advice would normally be to claim such relief as would reduce profits to the personal allowance relief threshold. It is not usually good tax planning to lose the benefit of personal allowances.

Partnership – This may not be straightforward in a partnership with differing personal circumstances for each partner, with a claim of capital allowances made against partnership profits, which are then allocated according to the profit sharing ratio. Whilst not always easy, it is usually possible to come up with a compromise which benefits most of the partnership’s members, remembering that other reliefs (e.g. averaging) may be available to be claimed on an individual basis to mitigate any negative effects. Please note that a mixed partnership which includes a limited company, a trust or estate is not entitled to claim AIAs.

Companies – Since companies are not entitled to personal allowances the point is not relevant.

Preserving ‘in year’ losses

The effect of disclaiming Capital Allowances is to preserve the value of the plant and machinery pool. This will give rise to higher writing down allowances (more tax relief) in future years and may also reduce any balancing charges which may arise on the disposal of assets, minimising the likelihood of a tax charge when you sell assets.

Losses brought forward may only be used against profits of the same trade, while losses made in a current year can be claimed against other sources (e.g. rental income and capital gains) subject to a £50,000 restriction. Current year losses are therefore much more flexible.  The £50,000 restriction applies to sole traders and partnerships.

Business cessation

Preserving the value of the plant and machinery pool is also very useful as a business approaches the end of its life.  As mentioned above a high pool value brought forward will mitigate any balancing charges and may give rise to a balancing allowance, which could potentially feed into a terminal loss claim, where many options are available to maximise tax relief.

Please note that an Annual Investment Allowance claim is not available in the final accounting period.

Hire Purchase agreements

If plant and machinery is purchased under a hire purchase contract you can only make a claim for the outstanding payments when the item is put into use. This rule has particular relevance to machinery with seasonal use, for example a Combine Harvester purchased in February is hardly likely to have been used before the 31 March year end, and therefore only the payments made can be claimed in that tax year.

It is possible though that this rule may actually work to a trader’s advantage, in that the AIA relief may be legitimately split between the two tax years.

To summarise

Think before you claim.  Are you wasting allowances?

  • Could a partial disclaim lead to greater relief in the future, perhaps giving rise to an in-year loss claim available against rental income and/or a capital gain?
  • Is the business approaching the end of its life, where the flexibility of a terminal loss claim could be beneficial?
  • Would a split year AIA claim for the purchase of a seasonal machinery under HP be advantageous?

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12th September 2017

Making Tax Digital delayed until 2020 for all taxes except VAT

Filed Under: Tax, Accounting, Business News

HMRC has announced a deferral to the launch of Making Tax Digital (MTD) following concerns raised by the accountancy profession, businesses and parliamentary bodies. The recommendation to postpone the implementation of MTD to 2019/2020 was originally proposed by the Treasury Committee in January which called HMRC’s plans ‘over ambitious’ in their 50 page report. The system for keeping tax records digitally was originally set to go live from April 2018.

The new timetable

  • Businesses with a turnover above the VAT threshold (currently £85,000) will start to keep digital records, for VAT purposes only, from 2019. All other taxes are optional until 2020.
  • Businesses and landlords with a turnover below the VAT threshold will not have to keep records digitally until ‘at least’ 2020.

We will continue to keep you updated with developments as HMRC release more information!

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29th June 2017

Making Tax Digital

Filed Under: Tax, Accounting, Business News

Major changes are being made to the way in which all taxpayers interact with HM Revenue & Customs (HMRC). This is known as “Making Tax Digital” (MTD) and work has already started with some changes implemented in April 2016, and further changes planned through to completion in 2020.  The introduction of MTD will mean that business, self-employed people and landlords will need to keep their records digitally and make quarterly reports to HMRC.


Businesses, self-employed people and landlords will be required to start using the new digital service as follows:

Landlords and unincorporated businesses with a turnover in excess of the VAT threshold (currently £85,000) April 2018
Landlords and unincorporated businesses with a turnover above £10,000 but below the VAT threshold April 2019
All VAT payments will have to be processed through MTD for the self-employed, unincorporated businesses and landlords. April 2019
All taxpayers that pay corporation tax and partnerships with a turnover of over £10m April 2020


Keeping records digitally

Currently, individual taxpayers can, if they wish, submit their annual tax return to HMRC on a paper form, whereas limited companies have had to submit their annual returns electronically for some time.  MTD not only means that all income tax, corporation tax and VAT returns are submitted electronically they must also be submitted on a quarterly basis.  As all returns must be digital they must provide information in a format specified by HMRC they are insisting that software be used to keep the records required.  However, HMRC have firmly said that will not provide free software to the taxpayers concerned.

Getting ready for MTD

Consider using software – If you do not already use bookkeeping software in your business you should consider doing so.  There are a variety of packages out there and so it can be a bit of a nightmare to decide which is best for you.  We would very much like to work with you in this process so please call your usual THL contact. We would also be able to offer setup support, initial training and ongoing assistance.

Consider changing your year ended – Currently draft rules mean that businesses with a 31 March year end look to enter MTD twelve months later than those with a 5 April year end.

Consider incorporating – Limited companies don’t have to enter MTD until April 2020 so if you’d like more breathing space you could incorporate your business.

Please do not hesitate to get in touch if you’d like to discuss how MTD will affect you.

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