The Annual Investment Allowance is a valuable tax break that allows businesses to claim 100% tax relief on the cost of most plant and machinery up to an annual limit.
The maximum annual amount of the AIA was increased to £500,000 in April 2014, with this remaining in place until 31 December 2015.
Originally, the government had planned to reduce the AIA to just £25,000 on 31 December but, in the Summer Budget, George Osborne confirmed that the new AIA amount will be £200,000 – meaning that businesses still have a substantial incentive to invest in their growth and development.
If your company’s accounting period straddles the date of change, then we need to make two calculations to work out your AIA entitlement for your 2015/16 financial year:
1: A calculation which sets the maximum AIA available to your business in its current financial year.
2: A calculation which sets the maximum AIA relief that will be available for expenditure incurred from 1 January 2016 to the end of your financial year.
If your company has a 31 March year end, under calculation 1, you will be entitled to up to £425,000 of AIA (9/12 x £500,000 + 3/12 x £200,000).
However for expenditure incurred on between 1 January and 31 March 2016 the maximum amount of relief you can obtain will only be £50,000 (3/12 x £200,000).
Clayton & Brewill is a firm of independent chartered accountants with offices in Nottingham, Melton Mowbray and Long Eaton.