It was announced in the March 2015 Budget that the government plans to extend the period over which self-employed farmers can average their profits for income tax purposes from two years to five years. The government has launched a consultation which considers ways in which the extension could be designed and implemented.
The change to the averaging rules is expected to come into effect from 6 April 2016.
Internet link: GOV.UK farmers averaging
It was announced in the Budget that the government will restrict the amount of income tax relief landlords can claim on residential property mortgage interest costs to the basic rate of income tax.
This means that landlords will no longer be able to deduct all of their finance costs from their property income. They will instead be restricted to the basic rate. To give landlords time to adjust, the government will introduce this change gradually from April 2017, over four years.
This restriction will not apply to landlords of furnished holiday lettings and will not impact on basic rate tax paying landlords.
From April 2016 the government will replace the Wear and Tear Allowance with a new relief that allows all residential landlords to deduct the actual costs of replacing furnishings.
Internet link: TIIN landlords
The Chancellor announced that Annual Investment Allowance will be set permanently at £200,000 from 1 January 2016 providing certainty for businesses. The AIA provides a 100% deduction for the cost of most plant and machinery (not cars) purchased by a business, up to an annual limit and is available to most businesses.
The AIA was increased to £500,000 from 1 April 2014 for companies or 6 April 2014 for unincorporated businesses until 31 December 2015. However it was due to reduce to £25,000 after this date. The level of the maximum AIA will now be set permanently at £200,000 for all qualifying investment in plant and machinery made on or after 1 January 2016.
Where a business has a chargeable period which spans 1 January 2016 there are transitional rules for calculating the maximum AIA for that period and there will be two important elements to the calculations:
- a calculation which sets the maximum AIA available to a business in an accounting period which straddles 1 January 2016
- a further calculation which limits the maximum AIA relief that will be available for expenditure incurred from 1 January 2016 to the end of that accounting period.
It is the second figure that can catch a business out as demonstrated by the following example:
If a company has a 31 March year end then the maximum AIA in the accounting periods to 31 March 2016 will be:
|9 months to December 2015 three quarters of £500,000
|3 months from January 2016 one quarter of £200,000
|Total annual AIA using first calculation
This is still a generous figure. However if expenditure is incurred between 1 January and 31 March 2016 the maximum amount of relief will only be £50,000. This is because of the restrictive nature of the second calculation. Alternatively, the business could defer its expenditure until after 31 March 2016. In the accounting period to 31 March 2017, AIA will be £200,000. However tax relief will have been deferred for a full year.
Please contact us for specific advice for allowances for your business.
Internet link: TIIN AIA