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Beyond the balance sheet

The Annual Investment Allowance increase means it’s time to invest in your business!

Matthew Wyatt 28/5/2014 4 minute read

Why companies need to act quickly to make use of the generous Annual Investment Allowance tax break, by Matthew Wyatt FCA.

In the Budget 2014, the Chancellor made a very important announcement for businesses - the Annual Investment Allowance (AIA) was to be doubled for a short period of time. This is potentially very significant for you as it rewards investment in specific areas through a tax break. However, the time limit means you need to plan for it now. Here is exactly what you need to know.  

 

What is the AIA and who does it apply to?

The AIA is a tax allowance for capital expenditure. It was designed to stimulate business investment in the economy by providing an incentive for businesses (or people) to invest their money in plant and machinery. The AIA applies to most companies and partnerships

 

How does it work?

The way the tax allowance works is to reduce your taxable profits by the total cost of the qualifying investment(s) up to £500k per annum. This means if you spent £200k on new computers/computer machinery and your taxable profits for the year were £500k, then you would only be taxed on £300k (£200k expenditure subtracted from £500k taxable profit). So you are now probably wondering what investment expenditure is applicable under this allowance?

Make use of your Annual Investment Allowance

What constitutes plant or machinery?

On the face of it, a vast number of assets could be viewed as "plant or machinery" so you could be forgiven for thinking that almost anything you purchase will qualify for AIA. Unfortunately this is not the case and it is why we have put together a list for you of typical assets that come under this heading. Additionally you need to remember that the person acquiring the assets must also own them.

You can claim for:

  • Robotic machines and computer aided machinery
  • Printing presses, lathes and tooling equipment
  • Agricultural machines including tractors and combine harvesters
  • Computers, office furniture and office equipment
  • Heavy duty vehicles such as vans, lorries, trucks, cranes and diggers
  • Integral features to buildings and structures such as electrical systems, cold water systems, water heating, ventilation, air conditioning, lifts, escalators and external solar shading
  • Building fixtures, such as shop fittings, kitchen and bathroom fittings
  • Games machines and amusement park rides
  • Fibre optic cabling and wind machines

What you can’t claim for:

  • Plant and machinery that has been used previously for other purposes such as furniture you used at your home that is then brought into the company as office furniture
  • Expenditure in the accounting period when your business ceased trading
  • Cars

It is worth seeking professional advice for further details and clarity as to what does and what doesn't classify as plant and machinery and how to go about claiming for it under this allowance.

 

What if you're making a loss?

If you make £100k taxable loss and have AIA qualifying investment expenditure of £200k, then simplistically this could increase your taxable losses to £300k. These losses can be carried forward which means if you then make a taxable profit of £300k the following year, potentially no corporation tax would be due.

Annual Investment Allowance

Consider your investment carefully but also quickly, there is a time limit

While the annual amount you can claim has increased to £500k, this is only until 31 December 2015.  The increase came into effect from 1 April 2014 so you only have 20 months from that date to make your investment decisions. That is not much time to potentially spend around three quarters of a million pounds – a decision most of us wouldn’t make overnight. After 31 December 2015 the amount is set to revert to £25k so you really should plan your spending accordingly to make use of this generous tax allowance whilst it is still available.

What should you invest in? Some ideas...

Is your front of house looking untidy and worn?

Are you wasting money on old, inefficient office/kitchen equipment?

Are you confident you could continue business as usual in the event of a power shortage?

If the answer to any of the above is yes then you should think about spending the money in these essential areas. Ensuring you have a sufficient backup power generation could be particularly useful considering recent headlines about possible future power shortages and blackouts. For more on AIA check out our budget briefing. The long and short of all this is now is the time to invest in your company!

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This publication is intended as a general overview and discussion of the subjects dealt with. It is not intended and should not be used as a substitute for taking professional advice in any specific situation. Wellers Accountants will accept no responsibility for any actions taken or not taken on the basis of this publication. 

 

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