Annual Investment Allowance reduction from 1 January 2016
The Annual Investment Allowance (AIA) provides a tax write off against profits for business expenditure incurred on plant and machinery. The allowance is currently £500,000, but in the Summer Budget in July 2015, the Chancellor announced a reduction in the amount of AIA available from £500,000 to £200,000 from 1 January 2016.
To take advantage of the current higher rate and ensure that available allowances are fully utilised, businesses should look to bring forward any planned plant and machinery purchases to before 31 December 2015.
Timing of Expenditure
If the accounting period of the business straddles the 1 January 2016, a pro rata calculation of the maximum AIA entitlement will be made.
For example, a company with a year end of 31 March 2016 will be able to claim £425,000 of AIA:
April 2015 – December 2015 9/12 x £500,000 = £375,000
January 2016 – March 2016 3/12 x £200,000 = £50,000
However, the AIA available for expenditure incurred after 31 December 2015 will be limited to £50,000 in the above example. To benefit from the full AIA available, the company must have incurred expenditure of at least £375k pre 31 December 2015.
Next Steps
As you can see, the timing of expenditure on plant and machinery is critical. If you are in any doubt as to what this change will mean for your business, please get in touch with us.
Disclaimer
The information was correct at time of publishing but may now be out of date.
