Q. I understand that the Annual Investment Allowance is to temporarily increase, what does this mean for me and my business?
A. The chancellor announced that the Annual Investment Allowance (AIA) will temporarily increase from 1st January 2019 for a two year period from £200,000 to £1,000,000.
The AIA gives businesses 100% first year tax relief on qualifying expenditure on plant and machinery. This can be claimed by an individual sole trader, a partnership or company that carries on a trade or vocation.
The purpose of the temporary increase is to provide more tax relief to businesses that spend over £200,000 on plant and machinery in an accounting period, which in turn should help businesses invest and grow.
The actual amount of AIA available will depend on a number of factors. For businesses that have accounting periods that span over 1st January 2019, the AIA will need to be apportioned based on the number of months in the accounting period either side of the change.
In addition, the amount of AIA available is also affected if the business decides to either extend or shorten their accounting period.
For businesses that spend in excess of the available AIA on plant and machinery, far less generous writing down allowances of either 8% (6% from April 2019), or 18% are available for expenditure on qualifying machinery.
It is therefore crucial that, from a tax perspective, the timing of the purchase of an expensive item of plant and machinery is considered to ensure that the increased AIA is available.
Subject to any further changes, the AIA will revert back to £200,000 on the 1st January 2021. If you are planning significant investment on plant and machinery in the near future, it would be prudent to ensure that timing of this is advantageous from a tax perspective.
Rennie Welch LLP accept no liability on the basis of this article and detailed advice, taking into account individual circumstances, should always be obtained.
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