Capital Allowance changes – the Annual Investment Allowance

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Did you know an asset bought for your business, with an expected life of two or more years, does not qualify for normal tax deductions?

Capital Allowances is a complicated area but one that can offer significant benefits to a business. They are particularly useful for SME manufacturers and businesses who need to buy new plant and machinery.

It is important to ensure that wherever possible, advantage is taken of claiming any capital allowances available to your business.

You can claim capital allowances when you buy assets that you keep to use in your business such as business vehicles, machinery or equipment.

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 March 31 for companies and April 5 or individuals or partnerships.

As announced at the Budget 2018, legislation will be introduced in the Finance Bill 2018/19 to increase, temporarily, the Annual Investment Allowance (AIA) to £1 million.

The AIA currently stands at £200,000: an increase is welcome news for businesses.

It’s assumed that this aims to stimulate business investment during a period of Brexit uncertainty. 

This means that businesses can claim a 100% allowance of up to £1 million, but only if bought between January 1, 2019 and December 31, 2020.

“This is something businesses really need to take advantage of wherever possible,” said Peter Way-Rider, tax manager at Ellis & Co Chartered Accountants and Business Advisers.

“If you need to make a big purchase, hold off until January 1 to use your allowance.

“The Chancellor brought back the old Industrial Buildings Allowance (re-naming it Structures and Buildings Allowance), in connection with expenditure on works under taken on or after October 29, 2018.

“The new name reflects the extension of this allowance to offices in view of the growth in the service industry,” he added.

For further information regarding Capital Allowances and how to apply, contact Ellis & Co on 01244 343504.