Annual Investment Allowance

From 1st April 2012 (6th April for Income Tax) the Annual Investment Allowance (AIA), which gives 100% relief on capital expenditure for almost all businesses is reducing from £100,000 to £25,000. The annual allowance is calculated pro-rata but the date of expenditure has to fall within the qualifying period. Therefore a business with an accounting period which straddles the April cut off date, effectively has two periods for AIA and the level of allowance and expenditure will be looked at separately in each of these two periods. The timing of capital expenditure could impact on the tax allowances available.

Other Capital Expenditure considerations:

  • The general rate of capital allowances has been reduced to 18% for periods ending after April 2012, there is no balancing charges available on pooled assets It is therefore increasingly significant to plan capital expenditure to maximise allowances available.
  • Low Emission Vehicles – 100% allowances on (below 110g/km of CO2), ideal for the fleet user? Additionally they also qualify for lower levels of benefit in kind assessment (possible 2nd car?) www.bmw.co.uk/bmwuk/index/F30-ED - now that is not what you were expecting (and no we don’t have a commission deal with BMW, other executive models will be available).
  • Green Assets – 100% allowances on “energy saving plant and machinery” details of approved assets can be found at www.eca.gov.uk These assets are more often expensive but this may be balanced by the advanced tax allowances.
  • Short life Assets – certain assets by their nature have a limited economic useful life. By separating these assets for capital allowances purposes it may be possible to retain the impact of the balancing allowances when the asset ceases to be used for the business and therefore ensure the full capital allowances over the life of the asset.
  • Integral features – there are potentially items qualifying for capital allowances as plant and machinery within a building used for business purposes. This requires specialist reviews and we have worked with experts in this field to obtain significant levels of additional capital allowances.
  • Research and Development – The definition of R&D expenditure has been amended and more classes of expenditure will qualify. In addition to the enhanced allowances for revenue expenditure there are 100% capital allowances for assets used for R&D purposes.