Capital allowances on veterinary equipment

Two reliefs, and the difference between them is not academic

Practice equipment is expensive, lumpy and bought in bursts — a digital radiography system in one year, an in-house analyser and a monitor the next. Getting the relief right is worth real money in the year of purchase, and the two routes have genuinely different eligibility rules.

The AIA limit of £1,000,000 has been in place since 1 January 2019 and covers most plant and machinery. For the overwhelming majority of veterinary practices it is more than enough on its own, which is the first thing to understand: full expensing matters where a business spends beyond the AIA limit, or where it wants relief on special-rate expenditure without using AIA capacity.

What this means for a practice buying kit

Worked example — illustrative. An incorporated practice spends £100,000 in one accounting period:

• new digital radiography — £45,000
• new in-house haematology and biochemistry analyser — £28,000
• new ultrasound scanner — £18,000
• second-hand scaler and polisher unit — £9,000

The whole £100,000 sits inside the £1,000,000 AIA limit, so AIA alone gives a 100% deduction. Full expensing would cover the £91,000 of new and unused equipment but not the £9,000 of second-hand kit, which needs AIA. Either way the deduction is £100,000 — the tax value is what changes with the company's profit level:

• at the 19% small profits rate, £19,000;
• at the 26.5% effective marginal rate between £50,000 and £250,000, £26,500;
• at the 25% main rate, £25,000.

Notice the middle line. A company whose profits fall between the marginal relief limits gets the highest value from the deduction, because the deduction comes off the slice taxed at 26.5%. That is a timing consideration worth raising before an order is placed, not after — and it is affected by the associated companies divisor covered in our incorporation guide, because dividing the limits changes which slice the spend comes off.

An unincorporated practice or a sole-trader locum has AIA only

Full expensing requires a company subject to corporation tax. A sole trader or partnership cannot use it. That is not usually a problem, because AIA is available to them at the same £1,000,000 limit and covers new and second-hand equipment alike.

Worked example — illustrative. A sole-trader locum vet with profits of £62,000 before capital allowances buys £14,000 of equipment — a portable ultrasound scanner and a laptop for clinical records. AIA covers the full £14,000, so profits fall to £48,000. The relief straddles the higher-rate threshold, so the saving comes in two parts:

• The slice from £50,270 to £62,000 — £11,730 — was taxed at 40% income tax plus 2% Class 4, so 42%: £4,926.60.
• The remaining £2,270 was taxed at 20% plus 6% Class 4, so 26%: £590.20.
• Total tax and NIC saved: £5,516.80, or about 39% of the spend.

That two-part calculation is the reason it is worth knowing where a purchase falls relative to £50,270 before you buy. Spending that drops profits below the threshold relieves the last few pounds at 26% rather than 42%, which occasionally makes a case for splitting a purchase across two accounting periods — a case that has to be weighed against actually needing the equipment now.

Second-hand equipment: the rule that catches practices out

Practices buy second-hand equipment constantly, and it is a perfectly sensible thing to do. Second-hand kit falls outside full expensing but sits within AIA. So does equipment bought as part of an existing practice, which is second-hand by definition — see our guide to buying a practice for why the apportionment of a purchase price between goodwill and equipment is worth negotiating.

Two other AIA exclusions are worth knowing because they arise in real practices. Items owned for another purpose before business use do not qualify — a vet who brings a personally-owned instrument set into the practice cannot claim AIA on it. Nor do gifted items, which includes equipment donated by a manufacturer or handed over as part of an arrangement with a supplier. And cars are excluded from AIA entirely, which brings us to vehicles.

Vehicles: the 100% allowances still available

A practice running visit vehicles has one route that survives the exclusion of cars from AIA. 100% first-year allowances remain available for electric cars and other zero-emission vehicles, and for electric vehicle charge-point equipment, where the asset is new and unused and the expenditure is incurred before April 2027.

Worked example — illustrative. A practice company buys a new zero-emission visit vehicle for £38,000 and installs charge-point equipment costing £3,500. Both qualify for a 100% first-year allowance. At a 25% corporation tax rate the deductions are worth £9,500 and £875 respectively — £10,375 of tax in the year of purchase.

Compare that with a conventional car, which is excluded from AIA and from full expensing, and whose cost is instead relieved gradually through the plant and machinery pools over many years. For a practice that does home visits or moves staff between branches, and that was going to replace a vehicle anyway, the difference in the timing of the relief is substantial. The April 2027 end date is the point to note in a replacement plan.

The disposal charge nobody reads about until it happens

Full expensing has a sting that AIA does not. Where a company has claimed full expensing, a disposal triggers an immediate balancing charge equal to 100% of the disposal value — the whole disposal proceeds are added to taxable profits in the period of sale, rather than being netted off against a pool.

Worked example — illustrative. A company claims full expensing on new digital radiography costing £45,000, then sells it three years later for £12,000 on an upgrade. The full £12,000 is an immediate balancing charge. At a 25% corporation tax rate that is £3,000 of tax in the year of the upgrade.

That is not a reason to avoid full expensing — the relief was worth £11,250 at the same rate when it was claimed. It is a reason to expect the charge when you trade equipment in, and to remember that a part-exchange is a disposal even though no cash changes hands. A practice on a rolling replacement cycle will see a balancing charge in most years, and it should be in the forecast rather than a surprise at the year end.

Getting the claim right

• Keep the invoices in a form that shows what was bought and whether it was new. "Equipment — £53,000" on a finance schedule cannot be split between full expensing and AIA afterwards.
• Record the date the expenditure was incurred, which is not always the date of payment, particularly on finance and on staged installations.
• Watch the accounting period. The AIA limit is annual and reduced proportionately for short periods, so a change of year end affects capacity.
• Separate out anything that is not plant. Building work around a new installation is a different question from the equipment itself and needs looking at on its own facts.
• Check the associated companies position before assuming which corporation tax rate the deduction is coming off.