In last week’s Budget, the Chancellor increased the annual investment allowance. He doubled it from £250,000 to £500,000 for an extended temporary period.
This measure is designed to stimulate business investment in the economy by providing an extended time-limited incentive for businesses to invest in plant and machinery. The time extension is to 31 December 2015 for Corporation Tax and Income Tax and further increase to £500,000 of the temporary Annual Investment Allowance limit. It applies from 1 April 2014 for corporation tax (CT) and from 6 April 2014 for income tax (IT) and runs until 31 December 2015, after which it will return to £25,000.
“Plant and machinery” includes tools and equipment used for maintenance or manufacturing, computers and other office equipment, plant and machinery etc. See detailed guidance on the meaning of ‘plant and machinery’. There is no statutory definition.
Background to the measure
The maximum amount of the AIA was temporarily increased to £250,000 from £25,000 for the period from 1 January 2013 to 31 December 2014. This measure extends the period of the temporary increase to 31 December 2015 and further increases the amount of the AIA to £500,000 from April 2014.
Current law
AIA is available for most businesses, including partnerships. It is not available for trustees or mixed partnerships (partnerships which are not made up entirely of individuals):
- Since 1 April 2008 (CT) and 6 April 2008 (IT) most businesses, regardless of size, have been able to claim the AIA on their expenditure on plant or machinery, up to a specified annual amount each year (subject to certain conditions mentioned below).
- With effect from 1 April 2012 (CT) or 6 April 2012 (IT) the maximum amount of the AIA became £25,000 for qualifying expenditure incurred on or after those dates. This was temporarily increased to £250,000 for the period 1 January 2013 to 31 December 2014 in Finance Act 2013.
- Businesses are able to claim the AIA in respect of their expenditure on both general and ‘special rate’ plant and machinery. There are however certain exceptions – set out in section 38B of the Capital Allowances Act 2001 (CAA), the main exception being expenditure on cars.
- The AIA is a 100 per cent upfront tax allowance that applies to qualifying expenditure up to a specified annual limit or cap.
- Where businesses spend more than the annual limit, any additional qualifying expenditure will attract relief under the normal capital allowances regime, entering either the main rate or the special rate pool, where it will attract writing-down allowances at the 18 per cent or 8 per cent rate respectively.
Proposed revisions
Legislation will be introduced in Finance Bill 2014, to further increase the AIA limit to £500,000 from 1 April 2014 for companies and 6 April 2014 for other businesses. It will end on 31 December 2015.
There’s more information available from HMRC here.
What you can and cannot claim for
Any new expenditure on plant and machinery assets bought after 1 April 2008 for Corporation Tax, or 6 April 2008 for Income Tax qualifies for AIA, apart from these exceptions:
- Motor cars
- Plant and machinery previously used for another purpose, for example, a computer used at home and introduced into your business
- Plant and machinery gifted to your business
- Expenditure incurred in the accounting period in which your business ceases
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