|
Introduction »
Capital complexity
The biggest surprise in the Chancellor’s Autumn Statement was the tenfold increase in the Annual Investment Allowance (AIA) only months after it was reduced. However, the way the increase is being introduced is not necessarily straightforward.
The AIA provides a 100% deduction for the cost of plant and machinery purchased by a business up to an annual limit which is:
- £100,000 up to 1 April 2012 for companies (6 April for unincorporated businesses)
- £25,000 up to 31 December 2012
- £250,000 from 1 January 2013.
It will revert to £25,000 from 1 January 2015.
So if you incur expenditure on plant from 1 January 2013, you can spend up to £250,000 and get a full tax write off then? Well, not quite.
There are three main points to note. The first two have always been a feature of AIA:
- there is no AIA on some plant £ the main exclusion being cars
- the AIA limits may need to be shared with other businesses which are under common ownership
- if the accounting period of the company straddles 1 January 2013, there are special rules being introduced which may restrict the AIA to a much lower figure in the straddling accounting period.
Where a business has an accounting period that straddles the date of change the allowances have to be apportioned on a time basis.
Example
A company has a 12 month accounting period ending on 30 June 2013 (which started on 1 July 2012). The AIA will be £137,500 (£25,000 x £ + £250,000 x £).
However, for expenditure incurred before the 1 January 2013, new legislation will be introduced to limit the maximum figure available. The maximum allowance will be the AIA that would have been due for the whole of the accounting period to 30 June 2013 if the increase in AIA had not taken place. This would have meant that the company would have been entitled to £25,000 for the 12 month period and so this is the limit for the six months to 31 December 2012.
On 1 January 2015, the AIA will revert back to £25,000. This will mean that the same company will have an AIA in later periods as follows:
Accounting period to 30 June 2014£££££££££££££££ £250,000
Accounting period to 30 June 2015£££££££££££££££ £137,500
Tips
The main point to appreciate is that expenditure incurred after 31 December 2012 may give a full tax write off but expenditure incurred before the 1 January 2013 may not give this result. In the example, if the company had spent £40,000 in the first six months of the accounting period relief would be limited to £25,000. The company can spend £112,500 (£137,500 - £25,000) in the six months to 30 June 2013.
If the company is planning capital expenditure in excess of this figure, then it may pay to defer the expenditure (or part of the expenditure) until after the end of the current accounting period as the full £250,000 AIA may be available. In the example above, the company could spend £250,000 in July 2013.
The special rules are published as draft legislation and so some of the detail may change. Please contact us if you are about to incur a significant amount on plant so that we can best advise you.
Introduction »
|