Timing key for capital allowances

QI run a manufacturing business in the West Midlands and I have recently had the good fortune of winning a large export contract. As a result, I will have to invest in new and more up-to-date equipment, as well as spending time on research and development. Is there any help or support available from the government?

AIt is good to hear that business is going well and congratulations on winning the contract.

There are two areas where government reliefs may help. In the recent budget the chancellor announced a change to capital allowances.

Currently you can obtain 100 per cent first year allowances on the first £200,000 spent on qualifying capital equipment in your accounting year so at the current rate of corporation tax at 19% you would save £38,000.

The good news, however, is that from January 1, 2019 this increases to £1 million so if you used up all that limit you would save £190,000. Timing though is key – dependent on your company’s year-end and when you require the new machinery. For example, if your year-end is March 31, 2019, you could spend £400,000 on qualifying equipment and save £76,000.

You also mentioned research and development (R&D) in relation to your new contract.

As a small or medium-sized enterprise you can claim R&D tax relief. For every £1,000 you spend on R&D you can get a deduction from your taxable profits of £2,300 (ie an extra 130% uplift).

A word of caution: these are complex areas but advice from a specialist firm, such as Haines Watts, will help guide you through any pitfalls. Nonetheless, both opportunities represent a good Christmas bonus for your business, even though you will have to be patient and wait!