Make the most of your Annual Investment Allowance
Since it was introduced in 2008, the Annual Investment Allowance (AIA) has changed four times and is set to do so again on 1st January 2016 when its current limit of £500,000 will fall to £200,000, meaning the benefits for SMEs will be significantly reduced. Therefore, businesses need to act fast in order to take full advantage of the current Annual Investment Allowance.
What is the Annual Investment Allowance?
The AIA is a type of capital allowance that offers 100% tax relief on eligible plant and machinery up to a set limit for the year of expenditure. In simple terms, it means that businesses can deduct the cost of qualifying expenses from their taxable profits in order to pay less tax. It was introduced to support SMEs by encouraging qualifying capital expenditure in order to increase growth and productivity.
How will the change affect my business?
If your business’s accounting period runs into 2016, your AIA will be calculated on a pro rata basis. For example, if your business’s financial year started 1st April 2015 and ends 31st March 2016, then the first nine months will be subject to the current £500,000 entitlement, making a maximum allowance of £375,000 for the period 1st April 2015 to 31st December 2015. The three month period between 1st January 2016 and 31st March 2016, when the allowance is reduced to £200,000, will be prorated to £50,000. This means that by the end of the financial year in 2016, businesses will have a maximum AIA of £425,000 for that period. However, do take into consideration that only £50,000 will be eligible for the first three months of 2016.
With this in mind, any SMEs that have been looking to invest in qualifying assets are encouraged to expedite any purchases with delivery and payment prior to 31st December 2015 in order to fully benefit from their 2015 AIA entitlement.
Need some advice? We would be more than happy to chat through your options so give us a call on 01392 927902 or contact us here.