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Newsletter - Summer 2010
Introduction »
Making every £ count
Since April 2008 most businesses, regardless of size, have been able to claim an Annual Investment Allowance (AIA) of up to £50,000 each year on qualifying plant and machinery. This includes expenditure on commercial vehicles (not cars) and may also apply to replacement expenditure on certain fixtures in buildings (integral features), such as air conditioning and rewiring, where more than 50% in cost terms of the asset is replaced.
The AIA has now been increased from £50,000 to £100,000 in the Finance Act 2010. This will be extremely valuable for larger businesses and some smaller plant intensive operations.
The increase will have effect for expenditure incurred from 1 April 2010 for companies and from 6 April 2010 for the self-employed in business.
It's all a question of timing
Many businesses will have a chargeable period that spans 1 or 6 April, so the AIA will have to be calculated pro rata for the period before and after the increase. For a company that prepares its accounts for the year ended 31 December 2010, the maximum AIA available for the period overall would be £87,500. This is computed as 3/12 x £50,000 (£12,500) + 9/12 x £100,000 (£75,000).
To ensure the full potential of this relief is achieved the company will need to get the timing of the expenditure right. Only £50,000 can be allocated to expenditure before 1 April 2010 (6 April for individuals in business).
Where qualifying expenditure does exceed the AIA available, the balance from April 2010 only qualifies for Writing Down Allowance (WDA). This is 20% for the general plant pool and 10% for the ‘special rate’ pool which includes integral features. From 1 April 2009 to 31 March 2010 (2009/10 for the self-employed) a 40% first year allowance was generally available on any excess instead of the 20% allowance on general pool items only.
Example
Both Red Ltd and Blue Ltd make up accounts to 31 December 2010. They each have £87,500 AIA available.
Red Ltd intends to buy commercial vehicles for £85,000 on 1 September 2010. As this expenditure post dates the increase but does not exceed the overall amount available for the accounts period - 100% tax relief is available on the whole £85,000.
Blue Ltd has also spent £85,000 on qualifying plant. £60,000 was expended on integral features in March 2010 and £25,000 in May 2010. Only £50,000 of the expenditure incurred before 1 April 2010 will qualify for 100% relief. The 40% first year allowance is not available on the £10,000 excess as it relates to an integral feature but 10% WDA of £1,000 is available. This provides £76,000 allowances overall.
Introduction »
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