Farmers warned about reducing tax allowances for capital expenditure purchases

Farmers have been warned about the need to take immediate action to minimise the impact of new allowance rates which come into effect next April.

Mike Harrison of Saffery Champness says: "At present, claims of 100% can be made on £100,000 invested in plant, machinery and commercial vehicles in the year to April 2012. However, from April 2012 the relief called the annual investment allowance (AIA) will be reduced to £25,000 with any excess expenditure only benefiting from a much lower writing down allowance of 18% per year".

"Where a farm, estate or rural business has a year end that does not coincide with the April tax year end, the AIA is apportioned. For example, a business with a year end of 30 June 2012, the AIA available in the current financial year will be £81,250 (see note 4)", explains Mike Harrison.

"Furthermore, for the part of the accounting period falling after April 2012, only a maximum of £25,000 would be granted 100% relief. Careful capital expenditure planning is therefore required for those businesses whose financial year straddles the April year end" says Mike Harrison.

Partners at Saffery Champness are currently advising businesses considering major equipment purchases to help maximise the allowances available and improve the cashflow of those entities.

Where buildings are being constructed, special care is needed to identify any fixtures and fittings as these will be eligible for relief, but if regarded as integral to the buildings only at 8% from April 2012.

"Capital expenditure allowances are invariably a complex matter and it is always sensible to take professional tax advice to ensure the maximum relief is obtained and at the earliest opportunity". Mike Harrison concludes.