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Capital claim
Capital allowances (CAs) are the Taxman’s version of depreciation on fixed assets owned by your company; anything from desks to printing presses can qualify. Even some non-physical assets count, like goodwill. You can claim a proportion of the cost as a tax deduction in the year you spend the money (this varies depending on the type of asset but can be up to 100%), and tax relief on the rest is spread over future years. So are there any good reasons for not claiming?
Reasons not to claim
You might consider not claiming CAs if, for instance, your company has made a loss in each of the last few years and so hasn’t paid any Corporation Tax (CT). Claiming CAs will only increase the loss but won’t get you any tax back. By carrying the capital expenditure forward you’ll have more to claim in later years when you do have a profit. But is that the best approach?
Just don’t claim
If you don’t want to claim the CAs, perhaps for the reason given above, then the obvious answer is to ignore the expenditure when it comes to completing the company’s self-assessment tax return. You can then claim CAs in a later year. That’s OK as far as it goes, but by not claiming CAs on expenditure in the year of purchase, the rate at which you’ll get tax relief may drop dramatically.
Example. Acom Ltd spent £20,000 on equipment in 2012/13. It can claim CAs equal to 100% of this cost in its financial accounts for that year. But it hasn’t been trading long and doesn’t expect to have a CT bill until 2013/14. So claiming CAs in 2012/13 won’t save any tax. Acom decides not to claim until the following year when it predicts it will have to pay CT. But the rules say that the rate of CAs Acom can claim for any year later than the one in which it bought the equipment is only 18%. So by deferring the claim until 2013/14 Acom can claim just £3,600 (£20,000 x 18%) of CAs and the rest of the tax relief due to it will be spread.
Tip. Claim CAs even if you won’t get immediate tax relief for them. They can be added to a trading loss which will always be set against the first taxable profit arising in future years, or it can be carried back up to three years to reduce earlier profits and so produce a CT refund.
In summary - add to your losses
By claiming CAs and adding them to a loss you can get the benefit of the higher rate of CAs that is given in the year that the capital expenditure is incurred. If you defer claiming until a later year, you’ll only be able to claim CAs at a lower rate.
And finally
A further incentive to claiming CAs sooner rather than later is that companies which defer claiming often miss out completely. When the time comes to make a claim they’ve changed their bookkeepers etc. and the expenditure, having been made in a previous year, is simply overlooked..
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