We understand that some machinery dealers have been highlighting the forthcoming reduction in the Annual Investment Allowance as a reason why you should consider purchasing machinery now. It is however essential that before making a major purchase you discuss the tax implications with your professional adviser.
There are a number of potential pitfalls which can affect how much Annual Investment Allowance will be given against a purchase of machinery. You should therefore ensure that you discuss the rules with your professional adviser before purchasing. For example you will need to know when your purchase will be treated as having been made for tax purposes and how the April 2012 change in the level of the Annual Investment Allowance will affect you personally.
It is essential to appreciate that both the date and method of payment can determine when a purchase is made for tax purposes. This in turn affects the amount of Annual Investment Allowance available against the purchase. If for example you purchase equipment using an HP agreement the purchase only becomes eligible for tax relief at the date of delivery. If delivery will be after 5 April 2012 this could significantly reduce the amount of Annual Investment Allowance which can be utilised against the purchase. In addition if you do not bring the asset into immediate use tax relief on future payments only becomes due when the asset is brought into use. The following example in HMRC’s Capital Allowances Manual illustrates this:
Bob enters into a contract on 24 May 2001 to buy a computer from Robbie. He pays £5,000 on 24 May 201 when he enters into the contract and then there are five payments of £1,000 at yearly intervals. He brings the computer into use on 4 July 2001. Bob is treated as owning the computer from 24 May 2001 onwards; the date of the contract, and Robbie is treated as ceasing to own it. Bob can claim PMA on the initial payment of £5,000 then. He can claim PMA on the five payments on £1,000 each of which he has still to make when he brings the computer into use on 4July 2001.
In addition if you make a purchase before the 5 April 2012 (or 1 April 2012 for companies), but your accounting year straddles the 5 April 2012, the amount of Annual Investment Allowance available will be time apportioned between the old and new levels. This may result in an Annual Investment Allowance for the accounting year which is significantly less than £100,000.
If you require further details of the rules for either the date an asset is deemed to have been purchased or how the change to the level of the Annual Investment Allowance will operate please contact NFU CallFirst on 0870 845 8458. We would however strongly recommend that professional advice is taken before entering into an agreement for a major purchase of machinery.
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