Equipment purchase tax

[Michael14]

Hi,

I own a restaurant and I would like to buy pizza oven.

Is there any difference in total savings if I buy the oven as expense (write off full value immediately) or if it is classified as asset and depreciated over a few years?

Also, I saw on leasing websites that leasing pizza oven is "tax efficient because it is considered as monthly expense". Is this a simple marketing trick (since the value of the oven offsets corporation tax either way) or there are some actual benefits here?

Thanks!

 

[Scalloway]

If you buy it outright you have various options for claiming capital allowances.

• write off the whole cost in the year of purchase as AIA
• write off part as AIA and claim 18% Writing Down Allowance (WDA) on the reducing balance each year.
• claim 18% Writing Down Allowance (WDA) on the reducing balance each year.

More information here.

Claim capital allowances

Claim capital allowances so your business pays less tax when you buy assets - equipment, fixtures, business cars, plant and machinery, annual investment allowance, first-year allowances.

www.gov.uk

And here.

Work out your writing down allowances

How to work out your writing down allowances. Work out main rate pools, special rate pools, single asset pools, small pools allowance, long life assets, short life assets

www.gov.uk

 

[MyAccountantOnline]

...

Is there any difference in total savings if I buy the oven as expense (write off full value immediately) or if it is classified as asset and depreciated over a few years?

...

No difference at all as depreciation isn't an allowable cost for tax purposes.

What you are looking at is buying v leasing.

If you buy a new oven it will qualify for capital allowances and it may well be that you can claim the 130% Super Deduction. It is subject to some conditions.

If you lease an oven the monthly lease payments will be treated as an expense which reduces your profit and hence tax.

You need to consider the actual cost to you, the cashflow implications and the tax savings.

 

[Michael14]

Thank you for responses!

So if the price of the oven is 10,000gbp, and I write off the whole expense under AIA, it means that my profit will be 10,000gbp lower and therefore I will pay 1,900gbp less in corporation tax (assuming that my profit was more than 10,000gbp in the first place, for example it was 50,000gbp and then after I put oven as expense it is now 40,000gbp)?

 

[MyAccountantOnline]

Thank you for responses!

So if the price of the oven is 10,000gbp, and I write off the whole expense under AIA, it means that my profit will be 10,000gbp lower and therefore I will pay 1,900gbp less in corporation tax (assuming that my profit was more than 10,000gbp in the first place, for example it was 50,000gbp and then after I put oven as expense it is now 40,000gbp)?

If the oven qualifies for the Super Deduction a deduction of 130% of the cost is taken off the taxable profit so if the oven costs £10,000 you reduce the profit by £13,000 a potential Corporation tax saving of £2,470.

 

[Mark T Jones]

Late to the party here, but it always annoys me when leasing companies/brokers shout about the 'tax benefits' of leasing. Many years ago it was likely (but not certain) that leasing would be tax beneficial. These days it is far less clear - and should be discussed with a tax accountant, not someone selling the product