The Annual Investment Allowance (AIA) – the maximum amount of business expenditure that can be fully deducted on qualifying plant and machinery – is due to be reduced from 1 January 2016.
The allowance currently sits at a very generous £500,000. A business effectively gets full relief in the year of acquisition for up to £500,000 of qualifying plant and machinery.
From 1 January 2016, the AIA limit will be reduced to £200,000. This is far greater than the originally planned limit of £25,000, but nonetheless is significantly lower than the current allowance. So that the current AIA can be fully utilised, businesses should look to bring forward plant and machinery purchases to before 31 December 2015; before the AIA limit is reduced.
Don’t put this off until the New Year!
The AIA limit
If the business’s accounting period straddles the date at which the AIA changes (i.e. 1 January 2016), the maximum AIA limit will vary. For example, a company with a 31 March year end will be able to claim up to £425,000 (i.e. 9 months at £500,000 plus 3 months at £50,000) BUT this will be limited to only £50,000 for the period 1 January 2016 to 31 March 2016, i.e. to benefit in full, the £375,000 must be used before 31 December 2015.
If cash-flow is tight, there are some potential planning options:
Please refer to our recent Tax Bite for more information. For further guidance on the new AIA rules, please get in touch with your usual Forbes Dawson contact.
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