As announced in the 2018 Budget and draft 2019 Finance Bill, the 100% Annual Investment Allowance (AIA) for qualifying expenditure on plant and machinery will increase to £1m per annum for the period 1 January 2019 to 31 December 2020.
As usual, where businesses have accounting periods that straddle the date on which the AIA will change, the current £200,000 and the new £1m allowance must be apportioned to calculate the maximum qualifying expenditure. The total AIA is apportioned on a calendar basis:
A business with a 30 June year end will have a total available AIA for the year ending 30 June 2019 of £600,000 (six months x £200,000, plus six months x £1,000,000).
However, as eligibility for the AIA depends on when expenditure is incurred, the maximum AIA for expenditure incurred in the period 1 July to 31 December 2018 will be £200,000 (i.e. the current limit) which, if fully used, will reduce the allowance available for expenditure between 1 January 2019 and 30 June 2019 to £400,000.
Careful timing of expenditure is therefore required: if the business has already spent £200,000 on qualifying plant since 1 July 2018, but wishes to purchase further plant, deferring the expenditure until after 31 December 2018 would enable further 100% relief on up to £400,000 to be obtained, whereas only normal writing down allowances would be available on further expenditure incurred before 1 January 2019.
The full £1m AIA will then be available for expenditure in the year to 30 June 2020.
Similar considerations will apply when the AIA is expected to revert to £200,000 on 1 January 2021 – expenditure should be incurred before that date in order to maximise relief.
Relief for any qualifying expenditure on energy or water-saving plant and machinery should firstly be claimed under the 100% Enhanced Capital Allowances regime (which will end on 31 March 2020 for companies and 5 April 2020 for unincorporated businesses), to allow maximum relief under the AIA for purchases of other plant.
Please contact us for further information or assistance on the AIA or any other capital allowances issues.
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