By Ian Price, Director
Time is running out if you want your business to benefit from current enhanced capital allowances of 130%. Be aware that limited companies have only until 31 March 2023 before the government ends this scheme.
However, an important point which may have passed under the radar is that the capital allowances are based on the financial year end and are time-apportioned.
Let's take a simple working example – say your financial year-end is 31 December 2022, and you incur £100,000 of qualifying expenditure on 31 December 2022. In this instance you'll be entitled to the full 130% of enhanced allowances, meaning you'll receive an additional deduction from your taxable profits of £30,000 which in turn will reduce your corporation tax liability by £5,400.
Using the same scenario above, you need to be careful that you don't fall into the trap of incurring the expenditure on 1 January 2023. This may be only one day later, and still within the government's deadline, but remember that the capital allowance is time-apportioned. As you've incurred that expenditure in the first quarter of your 31 December 2023 year, you will therefore only be entitled to a quarter of the relief. So in our example above, the enhanced relief becomes only £7,500, which reduces your corporation tax liability by only £1,425. By delaying the acquisition date by just one day, you would miss out saving almost £4,000 in corporation tax.
For limited companies whose year-end falls between October 2022 and February 2023, it is vital that any planned capital expenditure is incurred before your company's financial year-end, rather than focusing on the enhanced capital allowances deadline date of 31 March 2023.
If your financial year-end is approaching and you have planned capital expenditure, then please feel free to contact us to ensure you are not missing out.