100% Tax Deductions on Dental Equipment
One of the main objectives of the Budget 2007 reforms was to refocus the tax system for small business, with the provision of more generous and better-targeted incentives for investment. The annual investment allowance (AIA) now provides this generous incentive. The AIA provides an annual 100 per cent allowance for the first £50,000 of investment in surgery equipment to associates and principals. It replaced the previous 40 or 50 per cent first-year allowances for investments in plant or machinery by small or medium-sized enterprises (SMEs). The effect of this new incentive is that the whole of the cost of the first £50,000 of equipment bought by dentists for their practice can be written off against their tax bill in this tax year. Where dentists spend more than £50,000 in a 12 month period, the excess will attract writing down allowances, generally at the rate of 20%. So if possible, you should consider timing your expenditure to within the £50,000 limit for each year. Please be aware that your tax year end has an impact on the amount of tax you can recover, so typically many dentists are now being advised to split up purchases using HP, lease purchase and leases and also straddle purchases before and after their year end. Tim Gammon of Lease UK, a specialist finance company for dentists says, “In order to mitigate their tax position therefore we suggest that, subject to their Accountant's advice, dental practices consider HP or lease purchase for the first £50,000 in order to meet the requirement of a purchased item but then revert to a lease, as usual, for anything else over this sum.” Car purchases do not fall within this incentive but cars with CO2 emissions of less than 110g/Km do qualify for a 100% first year allowance, subject to being able to justify they are used by the practice. However, even if you are a higher rate taxpayer, a £50,000 payment for equipment to save £20,000 in higher rate tax should only be made if there are compelling commercial reasons for the investment. Otherwise you may be spending £30,000 of working capital from your business to buy an asset that may make very little contribution to future increases in profitability. As always it’s worth taking advice from your accountant on all matters concerning tax mitigation.
PDF