If you are planning to invest in plant and machinery (such as plant hire, for example) in the near future, make sure that it is before January 2016, which is when the Annual Investment Allowance will be reduced.
In the 2014 March Budget, the Chancellor declared that Annual Investment Allowance would be increased to £500,000 from the previous allowance of £250,000. However, on the 1st January 2016, the allowance will be lowered to £25,000.
What is eligible for Annual Investment Allowance?
Any items purchased for use in your company are eligible for capital allowances. Generally speaking, you will be able to reduce your gross profits by subtracting the cost of plant hire from them, using Annual Investment Allowance.
What is plant and machinery?
Items you use during the running of your company are all viewed as plant and machinery. The ‘integral features’ of the business premises and some of the fixtures in the building, including a bathroom suite or a fitted kitchen, all count as plant and machinery as well. If you make any alterations to a building so that you can install plant and machinery, this will be eligible for Annual Investment Allowance. However, repairs to business premises can’t be claimed as Annual Investment Allowance, although the cost can be deducted as a business expense if you are a sole trader or partnership. Limited companies can claim the cost of building repairs as a business cost, which will reduce the gross profits.
What doesn’t qualify as plant and machinery?
Cars are treated differently to plant and machinery. Vehicles purchased for business use are eligible for capital allowances. Part of the car’s value can be deducted from gross profits, using writing down allowances. To calculate the percentage you can deduct for cars each year using writing down allowances, you need to know the CO2 emissions.
How do you claim Annual Investment Allowance?
If an item qualifies as plant and machinery, the full cost can be claimed as Annual Investment Allowance, up to an annual limit of £500,000. You can claim the allowance in the year when you purchased the plant and machinery. If you are due to make a payment within four months, the date you purchased is the date the contract was signed. If you purchase plant and machinery using Hire Purchase, once you start using the item, you can claim for any payments you haven’t yet made.
As the rules for Annual Investment Allowance are complex, give us a call if you are considering making a claim and are looking for help from a leading accounting service.