Since 2008 most businesses have been able to claim relief through the Annual Investment Allowance (AIA) for expenditure on plant & machinery. The Summer Budget 2015 set the permanent limit of AIA at £200k from 1 January 2016.
Businesses are able to claim the AIA in respect of expenditure on both main rate and special rate plant & machinery, though some exceptions apply. AIA cannot be claimed in respect of expenditure on cars.
The AIA provides businesses with tax relief by giving an allowance of up to 100% of qualifying expenditure to be offset against taxable income, in the year in which the expenditure is incurred. Qualifying expenditure in excess of the annual limit attracts capital allowances under the 'normal' capital allowances regime, being written down at the main rate or special rate, as applicable.
At the Budget 2018 it was announced that the £200k annual limit is to be increased to £1m for a two year period from 1 January 2019. Where a business has a chargeable period spanning the start or end of this period, transitional rules will apply, the broad effect of which is to arrive at an annual limit for the period in question on a scale somewhere between £200k and £1m. Care needs to be taken when planning significant capital expenditure to ensure that the transitional rules are properly understood and applied as there are nasty traps for the uninitiated.
The measure is good news for small businesses who are planning significant capital expenditure that may qualify for the allowance. Those small business owners wishing to exploit the increased AIA limit should carefully plan with their accountant the timing of relevant expenditure over the next two years, ensuring that any impact of the transitional rules on the actual AIA limits available to the business is also fully understood.
If you'd like to know how this affects your business, contact us today.