A temporary increase in the Annual Investment Allowance (AIA) to £1 million was announced in Philip Hammond’s Budget on 29 October 2018, and it will provide significantly faster tax relief for businesses taking on new plant and machinery.
The new AIA cap is effective from 1 January 2019 and lasts for a period of two years, targeting plant and machinery investments between £200,000 (the current cap for AIA) and £1 million (the new temporary cap), helping businesses to invest and grow. After the two year period, the upper limit on AIA will revert back to £200,000 per annum.
This temporary, targeted measure is designed to accelerate business investment by making marginal investment decisions more attractive, given the current uncertain investment environment.
Peter Dobson, Managing Director of PMD says:
“This is extremely positive news for the business sector and will certainly stimulate capital expenditure on machinery, equipment and commercial vehicles. The Annual Investment Allowance is not just available for cash purchases but also for assets purchased using hire purchase and loans.”
AIA allows the total cost of plant or machinery purchases to be offset against a company’s taxable profit for the year. Effectively, this results in a saving on the cost of plant and machinery acquisitions of 19% at the current Corporation Tax rate.
What kind of expenditure qualifies?
Well, the term ’plant and machinery’ actually covers almost every type of asset purchased for business purposes. Really, the only business assets not covered are land, buildings and cars, which are excluded by one of the ‘general exclusions’. Typical examples of plant or machinery include:
vans, lorries, trucks, forklifts, crane, diggers and other construction plant
manufacturing machinery, waste/recycling equipment, garage equipment
computers and all kinds of office furniture and equipment
other building fixtures, such as shop fittings, security systems, industrial racking, kitchen and bathroom fittings
all kinds of business machines such as lathes, tooling machines and printing presses
tractors, combine harvesters and other agricultural machinery
computerised/computer aided machinery, including robotic machines
Should I delay buying any equipment?
Delaying an investment decision until 2019 is not necessary, unless your business has already used its available allowance. There are transitional arrangements for accounting periods which span the effective dates.
For example, for a 30 June 2019 year end, up to £200,000 can be claimed in relation to expenditure in the period to 1 January 2019, and a total of up to £600,000 (6/12 x £200,000 + 6/12 x £1million) can be claimed for the year to 30 June 2019.
Similarly, for periods spanning 1 January 2021, the maximum amount that can be claimed for the period 1 January 2021 to the end of the chargeable period will be the pro-rated amount of the £200,000 cap.
So for a 31 March 2021 year end, the maximum AIA for the year is £800,000 (9/12 x £1million + 3/12 x £200,000). Only £50,000 can be claimed for expenditure between 1 January 2021 and 31 March 2021 (3/12 x £200,000).
Different transitional arrangements apply to groups of companies. Full details of the announcement can be found here: https://www.gov.uk/government/publications/temporary-increase-in-the-annual-investment-allowance
Peter says “With the level of first year allowances raised to £1 million, combined with competitive funding rates and a wide range of alternative funding options, it’s an ideal time to think about any capital expenditure requirements. Our team at PMD would be delighted to assist you.”
If you’d like to know more about how the Annual Investment Allowance can be used to your advantage, call us on 0161 633 2548