Annual Investment Allowance: Reduction from £500,000 to £200,000 with effect from 1 January 2016
In the July 2015 Budget, the government announced that from 1 January 2016 the maximum amount of the Annual Investment Allowance (AIA) is to reduce to a new permanent level of £200,000. This reduction will have an impact on many businesses and the timing of expenditure will be critical when maximising claims under the AIA.
Businesses are able to claim the AIA in the year of purchase in respect of their expenditure on both general and ‘special rate’ plant and machinery. There are however certain exceptions, the main exception being expenditure on cars. The AIA is a 100 per cent upfront allowance that applies to qualifying expenditure up to a specified annual limit or cap.
Where businesses spend more than the annual limit, any additional qualifying expenditure will attract relief under the normal capital allowances regime, entering either the main rate or the special rate pool, where it will attract writing down-allowances at the 18 per cent or 8 per cent rate respectively.
Where a business has a chargeable period that spans the operative date of the reversion to £200,000 on 1 January 2016, transitional rules will apply which may impact on the total relief available.
If you are considering investing substantial funds in plant and machinery, or other qualifying expenditure, it is important the timing of such expenditure is reviewed before it is incurred so as to maximise any allowances available.