Capital Allowances for Machinery and Vehicles

Capital Allowances for Machinery and Vehicles

 The Chancellor announced that, for two years from 1 January 2013, the annual ceiling on Annual Investment Allowances (AIAs) will be increased from £25,000 to £250,000.  Broadly speaking, AIAs allow the whole cost of machinery and vehicles (other than cars) to be written off, for tax purposes, in the year of purchase.

However, this does not necessarily mean that a company (or an unincorporated business) will be able to go out in January and buy even £100,000 of machinery that will qualify for the increased allowance.  This is because special transitional rules apply where the company’s (or the trader’s) accounting date is other than 31 December.  For example, if the accounting date is 31 March, the maximum qualifying expenditure for the whole of the year to 31 March 2013 will be:-


9/12 (months) x £25,000                         £18,750

3/12 (months) x £250,000                                   £62,500


Maximum qualifying expenditure                                    £81,250


Of that £81,250, only £25,000 may be spent before 1 January 2013

 The full £250,000 allowance will then be due for qualifying expenditure in the next accounting year (to 31 March 2014).

 That was a very simple example, and in practice the calculation can be much more complex.  Furthermore, there are some complicated rules for determining when the purchase is treated, for Annual Investment Allowance purposes, as being made – it is not usually either the day you sign the order of the day you sign the cheque.  Accordingly, if you are contemplating a major purchase, or a programme of capital expenditure, we would strongly recommend you to contact us for individual advice.


Excessive CIS penalties

Tribunal Rules CIS Penalties Excessive


The First-Tier Tribunal has held that the statutory penalties charged for late filed Construction Industry Scheme Returns may be struck out as being (in human rights terms) disproportionate to the State’s legitimate objective of securing the payment of taxes, or may be reduced as being excessive.


Shortly put, under the statutory CIS scheme, a contractor is required to submit monthly Returns of payments to subcontractors.  The Case, Anthony Bosher v HMRC (2012) UKFTT 631 (TC), concerned penalties charged for Return periods before October 2011.  In outline, if a Return for such a period was not submitted on time, a fixed penalty of £100 was charged, with further £100 penalties if the Return was more than a month late, more than two months late, and so on up to twelve months.


If the CIS Return was more than 12 months late, an additional ’month 13’ penalty was charged.  The statutory maximum was £3,000, but in practice HMRC charged between £300 and £3,000 depending on how many times, in a rolling twelve-month period, a Return was submitted more than twelve months late.


Such penalties can of course quickly add up, and in Mr Bosher’s case, a total of £54,100 was charged for eighteen late monthly Returns – £19,300 of this was made up of fixed £100 monthly penalties and £34,800 of ‘month 13’ penalties.  The Revenue had offered to reduce this total to £14,600, the amount which would have been chargeable under the new system of late filing penalties which came into force in October 2011 (see page 148 of our June 2010 edition and page 67 of our December 2010 edition).


However, the Tribunal (Judge Aleksander and Ms Hewett) held that the monthly penalties were disproportionate, and so should be reduced to nil, and that the ‘month 13’ penalties were excessive and should each be reduced to an amount equal to the CIS tax shown on the Return or, if greater, £100 (making a total penalty charge of £6,287).


An interesting feature of the case is that Mr Bosher represented himself at the Tribunal and, in essence, simply claimed that ‘the fines are unjust’.  The Tribunal then based their decision on their own analysis of the law, though HMRC were represented by Counsel.


Finally, it seems to us that if the fixed penalties were disproportionate under the pre-October 2011 regime, they must still be disproportionate now.  The tax-geared penalties (charged on Returns more than six months late) probably are proportionate, though the statutory minimum penalty should probably be capped at an amount equal to the tax shown on the Return.


HMRC’s response to the decision is awaited.