Saving independent pharmacies money in taxing times
Could your pharmacy be paying less tax? In the second of two parts, Atif Butt looks at some of the tax savings available to pharmacies investing in new equipment, store refits and electric vehicles…
In an effort to stimulate more investment by UK businesses, last year’s budget saw the introduction of a new super-deduction for qualifying capital expenditure made by companies up to 31 March 2023.
This means that investment expenditure such as purchasing a robot or delivery vehicle can qualify for enhanced capital allowance rates of 130 per cent, allowing you to cut your tax bill by up to 24.7p for every £1 you invest.
There is also a new 50 per cent first year allowance for ‘special rate’ assets that are integral to buildings, which can apply on some of your costs if you are carrying out a store refit. Unlike the Annual Investment Allowance, which allows you a 100 per cent tax deduction on qualifying expenditure of up to £1 million per year, there are no limits on how much expenditure you can claim for in a year.
So, let’s take a closer look at some of the investment options for pharmacies and how they are impacted by the current tax rules.
Plant and Machinery – what’s included?
The super deduction is a form of capital allowance and provides tax relief for the purchase of plant and machinery. There is no single HMRC definition of what is plant and machinery, but most equipment purchased by pharmacies will be included.
So, if your pharmacy is purchasing medicine fridges, new computer systems, or investing in automation options like a robot, the enhanced tax relief will usually be available. The super deduction is also available on the purchase of commercial vehicles, but this doesn’t include cars. There are special rules for electric vehicles that we will go through later.
If you are carrying out a store refit, there will probably be a number of different things to consider when claiming capital allowances.
You’ll be able to get the 130 per cent super deduction on anything that qualifies as plant and machinery, and this would include things like new signage, till systems, furniture and moveable fittings like cabinets and freestanding shelving.
You won’t be able to claim the super deduction on some fixtures and fittings which are considered to be integral to your pharmacy premises, such as worktops, fixed shelving and non-moveable cabinets, or heating, lighting and power systems, as these are ‘special rate’ assets.
While these will qualify for the special 50 per cent first year allowance, it will be more advantageous for the company to claim 100 per cent relief under the Annual Investment Allowance (AIA). AIA is currently available on up to £1 million of expenditure per year, so you can claim the 50 per cent first year allowances if you’ve already reached the AIA threshold in the year.
Expenditure on structural items such as fixed walls do not fall under the AIA and would instead qualify for a much lower rate of 3 per cent under the Structures & Buildings Allowance.
If you are considering a refit, it’s important to speak to an accountant to make sure that the costs are treated in the most tax efficient way so you get the maximum relief.
Commercial vehicles, cars and the benefits of going electric
As we’ve seen earlier, commercial vehicles like vans can be considered as plant and machinery and so qualify for the super deduction of 130 per cent, but this usually excludes cars which have their own special rules and restricted allowances.
However, purchases of brand new, zero emission electric cars can qualify for 100 per cent first year capital allowance relief, which means the full cost of the car can be claimed in the year of purchase with no restrictions to the value of the vehicle. There are also extra allowances available until 31 March 2021 if you install charging points for electric vehicles at your premises.
There are a number of other tax advantages to purchasing an electric vehicle for your pharmacy. If you purchase an electric car through the business and also use it personally, there will be much lower personal tax due to pay on the benefit than there would with a non-electric vehicle. If you use a company owned zero-emission electric van personally outside of business hours there is no personal tax due.
There is currently no road tax or Vehicle Excise Duty to pay on fully electric vehicles and this will apply until at least 2025. The government is also offering grants of up to £2,500 towards the cost of an eligible plug-in vehicle, with a £3,000 grant for small vans and a £6,000 grant for large vans.
The current capital allowance rules in place until 31 March 2023 mean the UK has the highest value of capital allowances in the OECD, which is great news for pharmacies who have been considering investing in new equipment or undertaking significant capital projects.
Atif Butt is a senior accountant from Hutchings Accountants.