If you enjoyed our commentary last week on the Second Budget 2015, you’ll be pleased to hear about the Chancellor’s announcement on permanently setting the annual investment allowance (AIA) to £200,000.
The AIA provides a 100% deduction for the cost of most plant and machinery (not cars) purchased by a business, up to an annual limit and is available to most businesses.
The maximum amount of the AIA was increased to £500,000 from 1 April 2014 for companies or 6 April 2014 for unincorporated businesses until 31 December 2015. However it was due to return to £25,000 after this date. In his speech on Wednesday 8 July 2015, the Chancellor announced the level of the maximum AIA will now be set permanently at £200,000 for all qualifying investment in plant and machinery made on or after 1 January 2016.
What are the qualifying expenditures?
Expenditure on plant and machinery qualifies for AIA. However, there are a few exceptions which include:
- plant and machinery previously used for another purpose
- plant and machinery gifted to a business
- expenditure incurred in the accounting period in which a business ceases.
How to calculate AIA?
Where a business has a chargeable period which spans 1 January 2016 there are transitional rules for calculating the maximum AIA for that period. The maximum amount for the transitional period is the total of the time apportioned maximum AIA of £500,000 from the start of the chargeable period to 31 December 2015 plus the time apportioned maximum AIA of £200,000 from 1 January 2016 to the end of the chargeable period. However any AIA available on expenditure in the second period would be limited to the time apportioned maximum in that period.
In case you missed it, our Tax expert Alan McCappin reviewed the Summer Budget and outlined some important points for owner managed business. You can check out his views on our blog: The Emergency Budget that could cripple the UK economy?