UHY Ross Brooke Chartered Accountants

Is it better to buy new or repair?

I was recently asked by a director about the sorry state of one of the vans in his company’s fleet: “Should I replace the engine or buy a new van?”

With the director being particularly cost conscious, the new engine seemed an attractive and cheaper option even if this did not provide the benefits of adding a shiny new van to the company’s fleet. However the matter is not quite this clear cut.

The Annual Investment Allowance, which provides a 100% write off on most plant and machinery costs – which includes vans but not cars – currently stands at £500,000 per annum (falling to £200,000 from 1 January 2016), more than sufficient to cover the annual capital expenditure of most small businesses.

This then prompted a wider discussion with the director: How long would the van with a replacement engine last? When was he ultimately looking to upgrade this and the rest of his fleet of vans? However, the question of timing of the company’s next significant capital expenditure could equally apply to any small business and their respective assets, from a company’s IT systems to a key item of machinery.

Whilst decisions should never be made solely for the reasons of tax efficiency, the timing of capital expenditure to take advantage of the existing Annual Investment Allowance is certainly a matter for small business owners to take into consideration.

If you have any questions regarding this matter please do contact me.

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