Investing to increase profits

The UK tax code has numerous reliefs and allowances that reduce tax when businesses invest in qualifying assets.

Some of the reliefs allow up to 100% of the invested cost to be written off against taxable profits and companies can presently write-off 130% of qualifying expenditure.

But aside from these tax incentives to invest, it is worth considering the bottom-line effect that the investment will have on business profitability.

 

Cashflow considerations

Companies, who can claim a 100% write-off for an asset purchase, will presently save £190 for every £1,000 spent – this based on corporation tax rates being 19%.

Self-employed traders will save between £200 and £450 for every £1,000 spent – based on income tax rates ranging from 20% to 45%. There may also be Class 4 NIC savings.

In both cases the cash outlay (or debt acquired to fund a purchase) exceeds any overall reduction in tax payable.

 

Bottom-line mentality

You may be tempted to upgrade an asset out of hubris. For example, part-exchange a company car. If the vehicle offers savings in running costs or enables you to increase sales and profits, then the investment – you could say – makes commercial sense.

If the payback in additional profits is less certain, then the investment return may be less certain even when after-tax savings are considered.

 

Do the math…

When making decisions on major additions or replacements of plant, vehicles or other high-value equipment, be sure to consider all the effects on your business prospects. Otherwise, your tax reductions may come at the expense of hard-won cash reserves.

We can help you crunch the numbers to see if there is an overall benefit to your business. Please call before making any significant buying decisions.

Latest Blog
23
May

Act now to claim dormant funds

Recent legislation changes have been made which affects how the Court Funds Office (C...

Read More
16
May

Check out the Trivial Benefits rules

Trivial benefits are small gifts or perks given to employees that are exempt from tax...

Read More
14
May

Death and taxes

Death and taxes are certainties of life, according to Benjamin Franklin, and if you a...

Read More
08
May

What to expect in the coming year

It will not have escaped your attention that Prime Minister Sunak will need to call a...

Read More