Annual investment allowance – action needed before 31 March?

You may be aware that the annual investment allowance (AIA) for a company will be reduced from £100,000 to £25,000 from 1 April 2012.

The AIA is the tax relief available to a business on the purchase of capital expenditure such as vans, office equipment and plant and machinery.

The relief due is fairly easy to calculate if you have a year end of 31 March, but what if your year end is, say, 31 October? How much capital expenditure will qualify for the annual investment allowance?

The answer is quite complicated.

It goes as follows …

Maximum relief available

5/12ths x £100,000 = £41,667 (period from 1 November 2011 to 31 March 2012)

7/12ths x £25,000 = £14,583 (period from 1 April 2012 to 31 October 2012)

Total: £56,250

BUT

If there is no capital equipment purchased between 1 November 2011 and 31 March 2012, then the relief is only £14,583.

So the correct answer is £14,583 plus expenditure incurred between 1 November 2011 and 31 March 2012 up to a maximum of £41,667.

In other words, to obtain the maximum relief you need to spend a total of £41,667 between 1 November 2011 and 31 March 2012 and £14,583 between 1 April 2012 and 31 October 2012.

It is complicated.

Do you need to bring forward some expenditure to maximise the relief due to you?  You may also be interested in  Andrew Gray’s recent blog on 20% grants available for assets purchases here.  Contact me.