Many of you will probably not really understand (nor dare I say it, you will have never had it explained to you) what is going on when your accountant sits there and tells you what he has done concerning assets that you have bought and how they qualify for tax relief (capital allowances).
Simply put, capital allowances are allowances given for certain assets that are on your Balance Sheet. As the asset is on your balance sheet you will not have had tax relief, this is because this asset will last more than one year, this is where the capital allowance comes in, it allows a certain percentage of the asset value to be released and offset against tax every year, the idea is this is inline with the assets useful life.
However, from April 2008 all this changes. For Limited Companies it is 1 April 2008 and for Sole Traders and Partnerships it is 6 April 2008. From these dates a new annual investment allowance will be introduced whereby the first £50,000 of expenditure on plant and machinery will be offset against profits, in full, this is good news, for those thinking about buying new assets maybe you should wait a little while until after the changes in April 2008?
Note: From April 2008 the allowances you get on your existing assets that are already part of your capital allowances ‘pool’ will reduce from 25% to 20%.
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