Annual Investment Allowance reduced to 25K
Annual investment allowance reduced to 25k
At the end of the current fiscal year the Annual Investment Allowance (AIA) will be reduced to £25,000 from the current £100,000 threshold.
What is AIA?
AIA is a form of capital allowance. It allows businesses to claim full tax relief on most plant and machinery expenditure in the year of purchase. The only businesses that are not eligible are 'mixed partnerships' (those comprising both individuals and companies) and trustees.
When was the change announced?
The legislation is part of the Finance Bill 2011 and was announced in the June budget.
Who will it affect?
Businesses investing more than £25,000 a year in plant and machinery from April 2012.
What happens to this year's accounts?
If your accounting year-end coincides with the fiscal year-end (6 April 2012 for income tax payers and 1 April 2012 for companies) it will not affect your tax calculations for this year because all qualifying expenditure up to the current threshold of £100,000 will still receive a 100% deduction for income tax and corporation tax purposes.
But what if your trading year-end straddles the fiscal year end? The short answer is that AIA relief will be apportioned. In certain circumstances this can result in a loss of relief and higher tax bills. It may, therefore, be advisable to bring forward large outlays on plant and machinery to within the next eight months. Doing this could effectively save you 50p in taxable profits for every £1 invested in new equipment.
What next?
If your trading year does not end 6 April/1 April 2012 and you are contemplating significant capital expenditure in this period then contact us to discuss your tax planning options.
Submitted by MSB Accounting on Friday 2nd September 2011