Take advantage of the Temporary Annual Investment Allowance Increase
Back in Autumn 2012, the chancellor made a surprise announcement to increase the maximum amount of annual investment allowance (AIA) from £25,000 to £250,000 from 1st January 2013 for a temporary period of 2 years. (Following which, the allowance limit will drop back down to £25,000 from 1st January 2015).
The AIA gives a 100% tax relief for the cost of qualifying plant and equipment, up to a capped annual limit -now £250,000.
HMRC have estimated that this accelerated tax relief measure will benefit 90,000 businesses, spending over £25,000 a year on qualifying plant and machinery. The increase in capital allowances will provide a cash-flow benefit, likely to be of help to small and medium sized businesses which will stimulate the growth of the economy.
It is important to determine the optimum time to make your investment so you receive the highest amount of tax relief available –as the annual allowance is allocated according to the date of expenditure and the accounting period in which it falls into. If your accounting period is 1st January 2013 to 31st December 2013, the full £250,000 applies. But if your business has an accounting period different to this, the allowance will be proportioned and the calculation is slightly more complicated. For example, if your business has a yearend of 31st March 2013, you will need to split the allowance between your accounting period, as follows:
1st April 2012 – 31st December 2012 = £25,000 x 9/12 = £18,750
1st January 2013 – 31st March 2013 = £250,000 x 3/12 = £62,500
In this accounting period, the business will be entitled to a maximum AIA amount of £81,250; however the expenditure must be spread over those two periods to gain the maximum advantage.
You will also need to remember to apportion your AIA again when this temporary £250,000 limit ends and your accounting period straddles the 1st January 2015.
Any qualifying expenditure exceeding the AIA annual limit is also entitled to further tax relief (known as ‘Writing down allowance’) at an annual rate of 18% or 8%, depending on the nature of the item purchased.
Please note the following items that do NOT qualify for AIA:
- Plant and machinery previously used for another purpose, E.g. a computer used at home and introduced into your business
- Plant and machinery gifted to your business
- Expenditure incurred in the accounting period in which your business ceases
Whilst the government gave us little time to prepare for this, if your business is looking to grow and invest now is the time to take advantage. Before purchasing, please check how and when this will affect you. Of course, this has to fit within your business thinking and only if you have the available finance.
For further information and advice please contact us or check out HMRC’s guidance on their website http://www.hmrc.gov.uk/capital-allowances/plant.htm#3