The Annual Investment Allowance (AIA) provides an immediate deduction to many business for the cost of most plant and machinery (not cars) purchased by a business up to an annual limit.
The maximum annual amount of the AIA was increased to £500,000 from 1 April 2014 for companies or 6 April 2014 for unincorporated businesses until 31 December 2015. George Osborne has now told us in the Summer Budget what the 'permanent' amount will be from 1 January 2016. It is £200,000.
What have also been confirmed are the transitional provisions to calculate the amount of AIA in an accounting period which straddles the date of change. Two calculations need to be made:
- A calculation which sets the maximum AIA available to a business in an accounting period which straddles 1 January 2016.
- A further calculation which limits the maximum AIA relief that will be available for expenditure incurred from 1 January 2016 to the end of that accounting period.
It is the second figure that can catch a business out. For a company with a 31 March year end, under calculation 1 the company will be entitled to up to £425,000 of AIA (9/12 x £500,000 + 3/12 x £200,000). However for expenditure incurred on or after 1 January to 31 March 2016 the maximum amount of relief will only be £50,000 (3/12 x £200,000).
So check with us what will be the tax efficient capital expenditure limits between 1 January 2016 and the end of the accounting period for your business.