Tax Relief For Your Birthday Gift

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It's nice to receive gifts, and even better if you can claim a tax deduction for them. The Taxman says you can as long as you use them in your business. But as they cost you nothing, how much can you claim?


Capital relief

If you spend money on your business, you can expect the Taxman to allow the cost against your tax bill. But as with all tax reliefs it comes with conditions. One of these is that the expense isn't for a capital item, i.e. equipment lasting more than a year or two. If it is, there are special rules that still allow you to claim relief, but potentially spread over a number of years. This is called capital allowances (CA) (seeThe next step). A claim for CAs is subject to a long list of rules and restrictions.

All in the timing

You can't of course claim CAs unless the equipment is to be used in the business.

Example.John owns a consultancy business. He prepares his accounts to April 30 each year. In March 2009 he buys a computer desk. He uses it in his own home until January 2010 when he decides it would be put to better use in his business, and so moves the desk to his office. John is entitled to claim CAs in his accounts for the year ended April 30 2010. But is he entitled to claim tax relief on its original cost?

Restricted relief

If you own equipment in a personal capacity and decide to use it in your business, you can claim CAs on the "market value" (MV) of equipment at the date you first put it to use in your business. The MV for tax purposes means the amount that you could expect to sell it for. But what if John hadn't paid a penny for the desk because his wife had given it to him as a birthday present.

Giving can be a relief

s.14(2)(3) of theCapital Allowances Act 2001says that where a person receives a gift of some equipment which they subsequently use for business they can also claim CAs. Again, the amount claimable is the MV at that date. So in our example let's say John's wife had paid £800 for the desk in March 2009. But its MV at the time he moved it to use in his business in January 2010 is £600. John can claim CAs on £600 against his tax with his accounts for the year ended April 30 2010.

Don't look a gift horse...

The problem is that as soon as you, or the person making a gift to you, walks out the shop with the equipment its value decreases.

Tip. If you receive a gift of an asset you intend to use for business, do it straightaway. The longer you hold onto it for non-business purposes, the less it will be worth and so the tax relief you can claim will also fall.

Trap. If you delay bringing the equipment into business use, you could end up waiting for tax relief a lot longer than you expect. In our example if John deferred shifting the desk to his office until after April 30 2010, CAs couldn't be claimed until his accounts for the year ended April 30 2011.

Tip. Have you been given equipment in the last four years that you have used in your business but not claimed tax relief for? If so, whether it's a car or a computer, it's not too late to make a claim under the "overpayment relief" rules