Capital Allowances
Annual Investment Allowance (AIA)
The ‘annual investment allowance’ gives tax relief at 100% on qualifying ‘plant and equipment’ in the year of purchase. AIA will be reduced from £100,000 to £25,000 from April 2012. With this the first £100,000 spent on equipment in one year by a business will be offset in full against the profits for that year. This allowance should cover most items of plant and machinery used by an ophthalmic practice, although cars will not be included in this total. Where the practice spends more than £100,000 in one year the excess will be written off against profits at a rate of 20% or 10% per year on a reducing balance basis. Moveable equipment will attract the higher 20% rate, and equipment integral to a building (e.g. central heating, air conditioning, lifts etc) the lower rate of 10%.
Unused Annual Investment Allowance from any particular year cannot be carried forward to future years. Opticians planning to spend a significant amount on qualifying expenditure, such as an OCT, may therefore wish to consider the timing of their investment to ensure that it is as tax- efficient as possible.
From 1 April 2012 (corporation tax) and 6 April 2012 (income tax) the annual investment allowance is being reduced to £25,000. Many ophthalmic businesses will have an accounting/chargeable period that spans 1 or 6 April (6 April for sole traders and partnerships), so the AIA will have to be calculated pro rata for the period before and after the decrease.
For a company that prepares its accounts for the year ended 30 September 2012, the maximum AIA available for the period overall would be £62,500. This is computed as 6/12 x £100,000 (£50,000) + 6/12 x £25,000 (£12,500).
The curious point is that the transitional limit so computed applies (in effect) only to expenditure incurred before 31 March/ 5 April. AIA for expenditure which is incurred after 31 March 2012/ 5 April 2012 in a transitional period is restricted to just the relevant proportion of the new limit.
Thus if a company with a 30 September 2012 year-end incurs £100,000 of relevant expenditure in April 2012, it will qualify for AIA of just £12,500; by contrast the same expenditure incurred a month earlier will get AIA of £50,000. Even odder, if the accounting period is shortened to end on 31 March 2012, expenditure incurred in April 2012 as part of the ‘non-transitional’ accounting period ending on 31 March 2013 will potentially qualify for AIA of £25,000.
To ensure the full potential of this relief is achieved the company will need to get the timing of the expenditure right.
The maximum AIA is tabulated below, assuming the transitional rules are applied:
Year end |
AIA |
30/04/2012 |
£93,750 |
31/5/2012 |
£87,500 |
30/6/2012 |
£81,250 |
31/7/2012 |
£75,000 |
31/08/2012 |
£68,750 |
30/09/2012 |
£62,500 |
31/10/2012 |
£56,250 |
30/11/2012 |
£50,000 |
31/12/2012 |
£43,750 |
31/1/2013 |
£37,500 |
29/2/2013 |
£31,250 |
31/3/2013 |
£25,000 |
Where qualifying expenditure does exceed the AIA available, the balance from April 2012 only qualifies for Writing Down Allowance (WDA). This is 18% for the general plant pool.
Obviously for ophthalmic practices the issue of VAT is also an issue as due to 'partial exemption' rules VAT may not be recoverable in full. With this in mind it will be of greater importance for opticians to consider their purchasing arrangements in advance.
For more information or to discuss in greater detail please telephone Desirie Lea on 0151 348 8400 or email specs@moco.co.uk
Morris & Co have a dedicated team specialising in VAT and ophthalmic accounts and are able to provide advice and guidance on all aspects of financial accounting, taxation including partial exemption & business matters.
