Capital allowances planning


CAPITAL ALLOWANCES ARE CHANGING:

Increased Annual Investment Allowance

The Chancellor has announced a doubling in the Annual Investment Allowance (‘AIA’) for capital expenditure incurred by businesses from £250,000 to £500,000 per annum, for the period commencing 1 April 2014 (6 April 2014 for unincorporated businesses) to 31 December 2015. After this date, the AIA will reduce down to £25,000.

The AIA was originally introduced in April 2008 and is effectively a 100% first year allowance for business expenditure on qualifying plant and machinery (excluding cars) up to a prescribed limit. It is available to businesses regardless of their size or their legal form (i.e. limited companies as well as sole traders). The initial limit of £50,000 was increased in April 2010 to £100,000 and then decreased in April 2012 to £25,000 and increased again to £250,000 from January 2013.

This new measure is expected to incentivise small to medium sized companies to increase or bring forward their capital expenditure on plant and machinery, and is coupled with a reduction in the main rate of Corporation Tax to 21% from 1 April 2014.

Transitional AIA

Where a business's accounting period spans the date of increase in the AIA, there are special rules to calculate the maximum amount that can be claimed.

For example, X Limited’s accounting period begins on 1 January 2014 and runs to 31 January 2014.

Dates Fraction of period Allowance for full year Transitional allowance
01/04/14 to 31/03/14 3/12 £250,000 £62,500
01/04/14 to 31/12/14 9/12 £500,000 £375,000
  Transitional AIA maximum   £437,500

Note that the AIA is restricted to £250,000 where qualifying expenditure is incurred in the period to 31 March 2014 (i.e. the maximum claimable before the increase to £250k).

Where capital expenditure is incurred on qualifying plant and machinery in excess of the AIA limit in an accounting period or part period, writing-down allowances are available at 18% on plant and machinery.

This rate is reduced to 8% for assets which fall into the ‘special rate’ category, which includes long-life assets, cars with CO2 emissions in excess of 160g/km, and integral features in buildings (e.g. air-conditioning systems, lifts, escalators, electrical and hot water systems etc.).

Businesses should therefore consider the timing of any planned investment in plant and machinery to ensure that where possible they maximise their use of the increased AIA before it reduces down to £25,000.

If you would like to discuss the availability of AIA to your business, please contact us.

DISCLAIMER: This newsletter is for guidance only, and professional advice should be obtained before acting on any information contained herein. Neither the publishers nor the distributors can accept any responsibility for loss occasioned to any person as a result of action taken or refrained from in consequence of the contents of this publication.

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