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Annual Investment Allowance – Timing Is Critical

Date posted: 6th Nov 2018

It was announced in the Chancellor’s 2018 Budget statement that the Annual Investment Allowance (AIA) will increase from £200,000 to £1,000,000 for the two years from 1 January 2019 to 31 December 2020.

In simple terms, the AIA (which is a form of capital allowance) allows businesses to write off 100% of the costs of qualifying plant and machinery purchases (excluding cars) in the year of purchase, rather than being spread over a number of years.

So increasing the AIA is great news for business in that it will bring forward significant tax savings on purchases of qualifying plant and machinery.

However, businesses need to be aware of the complex rules regarding the timing of the expenditure, particularly where the accounting period spans 1 January 2019 (i.e. the date of commencement of the increase), as they may not be able to obtain 100% write off in the accounting period which spans 1 January 2019. The calculations to determine the amount of AIA that will be available depends upon a number of factors, including:

• The business’ year end.
• The amount of expenditure on plant and machinery made so far in the current accounting year.
• The date that any intended acquisitions will take place
• Whether the business is associated with any other businesses.

There are many pitfalls that a business could fall into when considering the increase in the AIA limits and business owners should not just assume that any expenditure will automatically qualify for the AIA and achieve 100% tax relief in the year of purchase. Mistakes in calculating the correct AIA can be costly to the business and professional advice should be sought.

We have considerable experience in capital allowance claims and planning in relation to acquisitions. If you are considering a sizeable investment in plant and machinery, then give us a call in advance to ensure that you maximise your tax savings.


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