Tax relief tips

We haven’t been in a position for a few years when we’ve had to ‘buy a tractor’ to save tax, but this year it might be necessary. What do we have to do to ensure we get the tax relief?

Ben Allman, director at specialist agricultural accountants Ballard Dale Syree Watson LLP replies: Buying plant and machinery should normally qualify for the Annual Investment Allowance (AIA) which gives 100 per cent tax relief in the year of purchase. Broadly this means that whatever you spend on qualifying equipment gets deducted from your taxable profits. So it is an extremely valuable relief.

Currently the AIA covers spend on £200,000 per annum, so anything you spend over this amount in your financial year will instead either get an 18% or 8% capital allowance annually on a reducing balance basis.

There are a few pitfalls to watch out for. If you purchase equipment on finance such as on Hire Purchase, the asset must be brought into use before the year end to be able to claim full allowances for that period. This is a particular risk with tractors and combines.

Cars also do not qualify for the AIA, although vans usually do as they are classed as commercial vehicles. There is a real grey area in terms of pickup trucks, so it is often advised to check the tax position of any vehicle you are considering for your business.

The AIA is also not available if you purchase the asset from a connected party. The rules on who is a connected party are detailed, though it can be said that if you are buying plant and machinery off someone you are related to, or their business, then you may need to seek advice on whether you are going to qualify for the AIA.

If you are ceasing to trade in your current structure, the AIA is not available. This rule can catch out businesses who are incorporating. A partnership moving their trade to a limited company will not be able to claim the AIA in their final period. With planning, this can be overcome.

To discuss this or any other aspects of business and tax planning, contact Ben at ben.allman@ballardsca.com or on 01905 794504.