Capital Allowances

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In the run up to the end of this tax year it is important to ensure that wherever possible, advantage is taken of claiming as much as possible of any Capital Allowances available. Not only are they effective in minimising or reducing totally the profits of a business (and therefore the amount of tax payable) but as the legislation has made numerous changes to the amounts a business can claim, it is vital that any investment is undertaken prior to 31 March 2012 for companies and

5 April 2012 for individuals or partnerships.

The Annual Investment Allowance (AIA)

The AIA provides a 100% allowance on up to £100,000 of qualifying plant and machinery expenditure (other than cars) to all businesses regardless of size and replacing first year allowances for SMEs (Small or Medium Enterprises).

The £100,000 ceiling was introduced on 1 April 2010 replacing the allowance of £50,000 which was introduced on 1 April 2008. As mentioned in the last Budget, the AIA is due to fall to £25,000 in April 2012. The maximum allowance is proportionately increased or reduced if the chargeable period is more or less than a year.

Where an accounting period straddles 1 April 2012 for companies or 6 April 2012 for individuals and partnerships, the maximum allowance will be calculated by taking a pro-rata proportion of the AIA of the periods falling before and after these dates. 

The reduction to £25,000 from 1 April 2012 means that careful planning will be required in the run up to the reduction. Businesses planning their capital expenditure should ensure where possible that their expenditure on plant maximises the 100% AIA. For example where a business has a 31 December year end the entitlement to 100% AIA over the next 3 years would be as follows:

Year ended 31 December 2011 £100,000

Year ended 31 December 2012 £43,750 (3/12 x £100,000 + 9/12 x £25,000)

Year ended 31 December 2013 £25,000



A limited company with a year end of 31 December 2012 would be entitled to an AIA of approximately £43,750 being 3/12 of £100,000 plus 9/12 of £25,000.

If the company incurred no qualifying expenditure in the period from 1 January 2012 to 31 March 2012 and spent, say, £30,000 in the remainder of the year the maximum AIA available to that business would be £18,750.

In summary, if you have plans for capital expenditure, undertake this now rather than leaving it until later in the year.

If you require any further guidance please contact Peter Way-Rider on 01244 343504