Annual Investment Allowance may be claimed for most items used for the running of your business, provided they fall into the plant and machinery category. This may include any machines you require to run your company, some of the building fixtures and integral features. The amount you claim can be deducted from the business profits, reducing the amount of tax you pay. Not all items are eligible for the allowance, with cars purchased for the business being a notable exemption.
Why was Annual Investment Allowance introduced?
The allowance was introduced to encourage business owners to invest in their companies, providing an incentive to invest in new plant and machinery. Provision of the allowance also provides assurance for businesses, as they can claim back all or part of the initial cost of items, up to the limit during that specific period.
How much Annual Investment Allowance can I claim?
The amounts of Annual Investment Allowance have varied considerably between the years of 2008 and 2016. The allowance was increased substantially to £500,000 from April 2014 to 31st December 2015. Following this date, the allowance was set to return to £25,000. However, the Chancellor announced that from 1st January 2016, the allowance would be permanently set at £200,000.
What if I invest more than the annual limit?
If a business spends more than £200,000 in a period which falls after 1st January 2016, the excess may be subject to tax relief using the general capital allowances regulations. The expenditure will attract tax relief at either 8% or 18%, either in the special rate or the main rate pool.
How is the tax relief calculated?
You can claim Annual Investment Allowance during the chargeable period in which it falls. For instance, if a chargeable period falls from 1st March 2015 to 31st February 2016, the maximum amount to be claimed is calculated by 10/12 x £500,000. You will also need to calculate 2/12 x £200,000. Add the two figures together to reach the total maximum amount you may claim during that specific period. However, there will be a balance of Annual Investment Allowance that may be claimed for further qualifying expenditure after 1st January, 2016.
Annual Investment Allowance and the treatment of capital allowances is complex, which is why many businesses rely on a professional outsourced accounting function. If you would like to know how the new rates of Annual Investment Allowance will affect your business in 2016, contact us today to make an informal appointment.