The shock announcement of the Autumn Statement was the tenfold increase in the amount of the Annual Investment Allowance (AIA).
The AIA provides a 100% deduction for the cost of plant and machinery purchased by a business up to an annual limit which is currently £25,000 for expenditure incurred from April 2012. The Chancellor announced that this limit will rise to £250,000 for a period of two years for expenditure incurred from 1 January 2013.
Where a business has an accounting period that straddles the date of change the allowances have to be apportioned on a time basis.
Where a company has a 12 month accounting period ending on 30 June 2013 the AIA will be £137,500 (£25,000 x 6/12 + £:250,000 x 6/12).
However for expenditure incurred before the 1 January 2013, rules will 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 months and so this is the limit for the six months to 31 December.
The rules for accounting periods straddling 1 January are complicated and this is without the additional complications that arise if part of the accounting period commences prior to April 2012 (as yet another AIA limit needs to be factored in).
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.
Please contact us before capital expenditure is incurred for your business in a current accounting period, so that we can help you to maximise the AIA available.
Internet links: HMRC TIIN