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I have my own VAT registered limited company , and have just picked up a job where I am going to need quite a lot of CNC plasma cut parts, so many in fact that it makes sense to buy a CNC myself.
To get a turnkey package it is going to cost me around £28K + VAT. It will be an outright purchase.
In the absence of my accountant who has probably gone home for the day, can anyone explain to me in simple terms about capital investment allowances and how it effects my corporation tax.
Now I understand I can use the purchase against my profits in the year I purchase the machine ( so I would "save' 19% of the £28K in the first year - so £5320 off my corporation tax,)
Assuming the unit is written off over 4 years ( who decides that?), does that value of £28k depreciate over each year and then you claim the 19% of its new value each year ?
Or is it completely different to the above ??
Cheers
written off over 4 years ( who decides that?)
Accountants, based on the useful life of the equipment and GAAP. Useful life is something they have to be able to justify, as I understand it, but justification can be in the form of vendor support (if it comes with 5 year maintenance included as standard and maintenance charges rocket after that, then you'd probably depreciate over 5 years), market value for 2nd hand, or GAAP. If you have a lot of kit, like we have storage arrays and you can demonstrate that previous iterations have been changed after an average of 7 years in service, your accountant would probably happily depreciate the replacement over the same 7 year period even if the previous one had only been depreciated over 5.
That's my understanding, but IANAA, I just have a large depreciation line in my budget 🙂 . Can't answer the rest 🙂
From what I understand, you can either write the value of in one go, or over a number of years. It all depends on how you/your accountant want to handle the tax/assets.
IIRC there is a limit (about 40k I think)on how much you can write of in one year before you'd have to pay tax regardless, which is why finance on big purchases can be worth having regardless of if you have the money to buy outright.
Largely agree with what is written above. For a purchase of that size you could get tax relief on the full amount in year 1.
The other option is to claim capital allowances over a number of years in line with HMRC rules.
In either event these are different to how you account for the purchase in your books, where you would record it as an asset on purchase and charge it to your accounts over a number of years (depreciation based on useful economic life ie how long you will get value from the machine).
What you therefore will get is that your accounting profit (ie after you’ve charged the depreciation) will be different to your profit for tax purposes, since the HMRC will add back the depreciation and knock off either the purchase of the machine in full, or an allowance each year, depending on how you choose to do it.
Hope that helps but good luck with the job, I’d love my own cnc machine 😄