Tax Planning

Last chance to cash in

As Sharon Pocock observes, when it comes to tax, early April is the best of times, the worst of times.

Business assets - such as computers, machinery and equipment - attract capital allowances which can reduce your taxable profits… and so reduce your tax bill.

In the tax year that you buy your asset, you can deduct 40% capital allowances from your taxable profits for that tax year. In later tax years you can deduct capital allowances of 25% of the net cost of the asset.

So when to buy?

If you buy your asset before 5 April 2006, you could attract 40% allowances in 2005/2006.  But if you buy your asset after 6 April 2006, this asset will only attract 40% allowances in the 2006/2007 tax year.  Clearly, by purchasing your asset before5 April 2006, you will get your 40% allowances a whole tax year earlier than if you’d waited another day.

And when to sell?

You don’t get any capital allowances for the tax year in which you sell an asset.  So, if you sold your asset before 5 April 2006, you would lose your capital allowances on the sold asset for 2005/2006.  However, if you sold your asset on
6 April 2006, you would have the benefit of full tax allowances for 2005/2006, but none in 2006/2007.

Tax tips

To gain the greatest tax benefit, you may consider buying your asset before 5 April 2006 but delaying the sale of your old asset until 6 April 2006.  Thereby you would receive 40% allowances on the new asset, plus 25% allowances on the old asset in 2005/06.

The tax benefits suggested are simplified, however, and will depend on the profits made during the tax year.

Sharon Pocock is a Hereford-based chartered accountant. Sharon@kinderpocock.co.uk

When to buy and sell business assets - tax planning tips and advice.

Please note that this article is not written by WiRE but by a third party company. Whilst WiRE have made every effort to ensure that the information and details are accurate, we are unable to guarantee that they completely and WiRE are therefore unable to accept liability for any loss you may suffer as a result of omission or inaccuracy,