Why? The AIA reduces on 1st January 2016 from £500,000 to £200,000 and there is a timing issue for those businesses whose year end is NOT 31st December 2015. If your accounting is after Dec 31st, then the maximum you can claim is calculated using time apportionments of the old and new AIA before and after the date of change.
EXACT’s year end is 31 January 2016. This spans the change in the AIA on 1st January 2016. Transitional rules therefore apply meaning EXACT is entitled to an AIA of £475,000 for its year end 31 January 2016. This is calculated as follows:
- The period 1 February 2015 to 31 December 2015 is eleven months: 11/12 x £500,000 = £458,333
- The period 1 January 2016 to 29 February 2016 is one month: 1/12 x £200,000 = £16,667
Other businesses are affected thus:-
|Year End||Total AIA Available|
The AIA was introduced as a temporary tax incentive for businesses to invest in new equipment. It allows you to deduct the full cost of machinery etc. for tax purposes for the accounting year in which it’s purchased, rather than being spread over many years.
The Annual Investment Allowance (AIA) – the capital allowance, which offers tax relief at 100 per cent on qualifying expenditure in the year of purchase – is to be permanently set at the generous level of £200,000 from 1 January 2016.
So, if you are planning to invest, do it ASAP, and give us a call to maximise your tax relief!