Capital ups and downs
For the last few years, businesses have been able to claim the full cost of some of the plant and machinery they buy for the business, rather than the depreciation charged in the accounts. Anyone spending more than the ‘annual investment allowance’ (AIA) deducts 20% or 10% writing down allowances (WDA) on the balance – the rate depends on the type of plant.
Up to April 2010 the AIA was £50,000. Then it went up to £100,000, but it’s falling again to £25,000 on 6 April 2012 (1 April for companies). The way this works can affect expenditure even before that date. Suppose you’ve started the year to 30 September 2012 – in round terms, half before and half after the change. Your AIA will be 6/12 x £100,000 + 6/12 x £25,000 – £62,500. So you can’t spend £100,000 in March 2012 and expect to get a full allowance because you’ve beaten the deadline.
What’s worse, expenditure in the part of the period after the change can’t get AIA if it exceeds that fraction of the £25,000. Taking the example on, if you don’t spend anything up to 5 April 2012, you will be restricted to AIA of 6/12 x £25,000 = £12,500 in the following 6 months.
To add to the problem – or further subtract from the allowances – WDA will fall to 18% and 8% from the same date, with a similar hybrid calculation for periods that span the change. So anything above the AIA will enjoy smaller allowances.
If you spend more than £25,000 a year on plant, or intend to make a substantial investment in the near future, these are important rule changes. We can help you understand how to get the best tax relief for your money.