Accounts Tax Vat

Accounts, Tax and Vat explained in plain English

Annual Investment Allowance Changes April 2012

hmrc logoIf you are in business either as a sole trader, partnership or Company and purchase plant and equipment you should already be taking advantage of the Annual Investment Allowance.

Currently HMRC offer 100% tax relief on qualifying investments such as machinery, furniture, technology and business vehicles up to £100,000 per year. What this means is that all qualifying fixed assets purchased up to the £100,000 limit qualify for 100% tax relief in the year of purchase.  This will change come April 2012 at the end of the current tax year to a lower £25,000. The impact to larger businesses that invest in high value capital items could be huge.

For example, currently if a piece of machinery is purchased for use in a business with a value of £100,000 the full amount will be available for tax relief. If this same piece of machinery is purchased a year later when the AIA (Annual Investment Allowance) is only £25,000 only ¼ of the value will obtain 100% tax relief in the year of purchase. The remaining £75,000 will receive writing down of 18% in April 2012 (currently 20% for the 2011/12 tax year).

What this means is that the business will not get the full tax relief in the year of purchase and the remaining amount will receive an allowance of 18% for each tax year going forward (or whatever appropriate rate which may be applicable).

Common questions
What is the AIA?
The AIA is a sort of capital allowance, which offers tax relief at 100% on qualifying expenditure in the year that it is purchased. The maximum which can be deducted from taxable profits is £100,000 (or £25,000 from 6 April 2012). This is pro-rated for short or long periods, and adjusted for periods which span the difference allowance dates.

Who can claim?
Most businesses can claim, provided that they are trading although there are exceptions. It is worth noting that where businesses are related by common control the AIA will need to split between them.

For more information visit the HMRC website or speak to your accountant.
HMRC Link: http://www.hmrc.gov.uk/budget2008/bn12.pdf

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