The Fizz! Blog

Thinking of investing a lot of money in your business in the coming months? Get your skates on!

Unlike general overheads, there are special rules for how and when a business can claim tax relief for long-term "plant and machinery" like computers, furniture, vans and so on.  Few businesses have to worry about the details of those rules though, because they save tax right away on the first £1m of such purchases each year - it's called the Annual Investment Allowance (AIA).  Historically, that £1m is unusually high, and from 1 January it's due to revert to £200,000.  Around 30,000 businesses each year spend more than £200,000 on plant and machinery, so they're going to find the pace with which they can save tax on those costs slowing.

If a business does not have a 31 December year-end, the rules are complex, and there are traps it's easy to fall into.

31 March is a very common year-end.  A company with a 31 March 2021 year-end is going to have a total AIA of £800,000 - that's 9/12ths of 2020's £1m (which is £750,000), plus 3/12ths of 2021's £200,000 (which is another £50,000).  However, when the spending happens is important too, and the company's year is split into two for these purposes.  If the company spends £600,000, and it all happens in the calendar year 2020, that's fine - it's covered by the £750,000 allowance for the first nine months.  However, if they spend it in January, February and March 2021 it's not fine.  Only £50,000 of AIA is available for those last three months, and any unused allowance from the first nine months is lost.  The balance of £550,000 must be carried forward, and relief claimed at a very slow rate through the years.  You could potentially mitigate things a bit by changing the year-end, but whilst that would give you a bit more upfront relief the bulk of the problem would remain.

So, if someone is, say, going to be fitting out a restaurant in the next six months, they might be wise to think about trying to get it done in 2020, not in the New Year.  There's a Budget before the end of the year, and there's always the possibility that the £1m AIA will be extended into 2021, but you can't bank on it.

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Do you have teenage kids with forgotten Child Trust Funds?

Back in his Chancellor of the Exchequer days, Gordon Brown announced that all children born from 1 September 2002 onwards would qualify for a “Child Trust Fund”.  HMRC sent vouchers for £250 to parents (or £500 for lower income households) for them to deposit into a Child Trust Fund, either to be saved as cash or invested in shares.  If that wasn’t done within a year, then HMRC automatically set up an account for the child themselves.  The scheme continued for all children born until 1 January 2011.  Until August 2010, children received an additional £250 (or £500) on their 7th birthday.  Families were also able to top up the accounts themselves if they wanted to.  Once the child turns 18, they have full access to their savings.

So, from this month, the first batch of CTFs are maturing, for those children born in September 2002.  It’s quite likely that parents will have forgotten all about their kids’ CTFs – 18 years is a long time, and you might not have given it a thought since then!  The CTF provider should be writing to your child to set out their options now that the account has matured, but if you’ve moved house since, they might not know where to find you.  Usefully, the government have provided an online tool that children and parents can use to track down their CTFs:

https://www.gov.uk/child-trust-funds/find-a-child-trust-fund

There could be a useful little nest egg there to help your kids kick-start their savings, pay for driving lessons, or whatever else they might need!

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