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Annual Investment Allowance to be ‘permanently’ at £200,000

The Annual Investment Allowance (AIA) has been set at £500,000 since April 2014 to encourage businesses to invest in plant and machinery but will drop to its new ‘permanent’ level of £200,000 from 1 January 2016.

This means that companies with financial years that end after 1 January will need to plan their expenditure carefully, as Clayton & Brewill’s Amanda Stefanetti explains.

Amanda Stefanetti

The Annual Investment Allowance is a valuable tax break that allows businesses to claim 100% tax relief on the cost of most plant and machinery up to an annual limit.

The maximum annual amount of the AIA was increased to £500,000 in April 2014, with this remaining in place until 31 December 2015.

Originally, the government had planned to reduce the AIA to just £25,000 on 31 December but, in the Summer Budget, George Osborne confirmed that the new AIA amount will be £200,000 – meaning that businesses still have a substantial incentive to invest in their growth and development.

Invest – if you can – before 31 December!

If your company’s accounting period straddles the date of change, then we need to make two calculations to work out your AIA entitlement for your 2015/16 financial year:

1: A calculation which sets the maximum AIA available to your business in its current financial year.

2: A calculation which sets the maximum AIA relief that will be available for expenditure incurred from 1 January 2016 to the end of your financial year.

It is the second figure that can catch a business out.

If your company has a 31 March year end, under calculation 1, you 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 between 1 January and 31 March 2016 the maximum amount of relief you can obtain will only be £50,000 (3/12 x £200,000).

If you are considering investing in plant and machinery and your financial year ends after 1 January, please check with us for advice on the most tax efficient time to make your investment.

You can contact a member of the Clayton & Brewill team on 0115 950 3044 or click here to email us.

Clayton & Brewill is a firm of independent chartered accountants with offices in Nottingham, Melton Mowbray and Long Eaton.