In the last few weeks I have come across the situation where clients who have been claiming tax credits face the prospect of having to repay all of their 2011/12 and 2012/13 credits amounting to over £10,000.
This has arisen as businesses have in recent years replaced plant and machinery making use of the very generous 100% capital allowances that are available, until recently on expenditure of up to £100,000 per year.
Those that have used these allowances in recent years to reduce their taxable profit have benefited from low, or no tax bills, and for families, significant tax credit claims.
Well now those that became hooked on 100% capital allowance claims are suffering from withdrawal symptoms!
Once you have claimed all the value of a tractor, pickup etc there is nothing left to claim in future years. With no capital allowances to claim taxable profits are increasing significantly, even when the profit on the face of the accounts is similar to previous years.
With increased profits come tax bills and recalculation of previous years tax credits, in a couple of cases I have seen in the last few weeks the total tax, payments on account, and tax credits repayments have equated to between 50%-100% of profit on the accounts!
This issue will be come much more widespread with lower allowance claims this year.
So if you have been benefiting from a capital allowance high make sure you come off it slowly to manage cashflow!
If you want to know what you can do about it get in touch.
rob@doddaccountants.co.uk
Follow on twitter @Rob__Hitch
