10 Oct 2015 Annual Investment Allowance change – watch the date!
The capital allowances annual investment allowance (AIA) will be £200,000 from 1 January 2016. The limit is expected to remain at this level and is much higher than the £25,000 limit previously expected, although not as generous as the £500,000 limit applying up to 31 December 2015.
For accounting dates spanning 1 January 2016 transitional provisions will apply to apportion the £500,000 and £200,000 limits over the accounting period and so the limit for the accounting year will fall between £500,000 and £200,000.
However, particular care needs to be taken where qualifying expenditure is incurred in the period from 1 January 2016 as a separate limit applies for expenditure in this period which may be significantly lower than the limit for the full year.
For example, with accounts ending on 31 March 2016, the AIA limit for the year will be £425,000 (ie £9/12 x £500,000 + 3/12 x £200,000). But for expenditure arising between 1 January 2016 and 31 March 2016, because of the way in which the legislation is worded, the limit is restricted to £50,000 (ie 3/12 x £200,000). So, if the business incurs qualifying expenditure of £100,000 in the year by 31 December 2015 the full amount would qualify for AIA. If the same business incurred all the expenditure after 31 December 2015 only £50,000 would qualify for the AIA with the writing down allowance being available on the balance.
The contrast is even more marked for January and February accounting dates!
Anyone making substantial acquisitions of assets qualifying for capital allowances after 31 December 2015 and expecting AIA to be available on the full amount may be disappointed. Bringing forward the expenditure to before 1 January 2016, or possibly delaying the expenditure until after the end of the 2016 accounts, may improve the position for AIA purposes, as may changing the accounting date of the business.
Summary
It is hoped that this will be the last significant change to the AIA limit where transitional provisions affect the timing of commercial business decisions.
Remember that the AIA is only available to a sole trader, company or partnership of individuals, so partnerships including a trust or company are not able to benefit from these provisions. There may be further restrictions on the AIA if there are shared premises and/or similar activities.
If you have any queries, please contact your usual consultant or Nick Abbott on 01993 886407 [email protected]