Annual Investment Allowance
The government wants you to invest in equipment for your business, so allows you a 100% deduction for the first tranche of your annual spend on equipment and those fixtures and fittings which qualify for capital allowances. This is called the annual investment allowance (AIA).
The AIA has an annual cap, which was set at £50,000 from April 2008, increased to £100,000 in April 2010, and cut to £25,000 in April 2012. Now the AIA cap will go up again to £250,000 for expenditure incurred in the two years from 1 January 2013. If you spend more than the available AIA cap, your business is given tax relief on the excess expenditure at the rate of 18% or 8%, depending on the nature of the item purchased.
So how will the increased cap apply? If your business has a 31 December year end, the AIA cap for the years 2013 and 2014 is easy to calculate at £250,000 per year. But where the accounting period straddles 1 January 2013, the calculation of the AIA cap is complicated.
Say your accounting year ends on 31 March 2013. You need to split the period (for AIA purposes only) into:
1 April 2012 to 31 December 2012 (9/12 of £25,000 AIA); and
1 January 2013 to 31 March 2013 (3/12 of £250,000 AIA).
The maximum AIA cap for the year is these two figures added together. However, the expenditure must also be split between those two periods to gain the maximum advantage from the AIA. You can’t spend the whole annual total in one part of the period or the other.
The complications don’t stop there, as there is protection for businesses that have already spent their maximum AIA of £25,000 in 2012. Please ask us to check how much the AIA cap will be for your business before you buy any expensive equipment.
