During Budget 2015, the Chancellor failed to provide clarity for business owners over the future of the Annual Investment Allowance . They may have to wait until the end of 2015 to discover whether or not the current £500,000 level is going to be maintained.
What are the current AIA rules?
By allowing firms to offset the cost of eligible plant and machinery costs against their annual tax bill, the Government hopes that the savings will be reinvested and used to promote economic growth. The previous limit was increased ten-fold from April 2012 from £25,000 to £250,000, and then doubled again from April 2014.
As things currently stand, eligibility to claim for capital equipment expenditure within the current £500,000 annual limit will expire on 31st December 2015. And importantly, this limit applies to relevant equipment which is already on site and able to be used by this date.
So, until the end of 2015, capital assets which fall under the definition of ‘plant and machinery’ (which includes office equipment) will receive 100% tax relief against the company’s profits for tax purposes, on the first £500,000 of qualifying expenditure.
If your business makes eligible purchases which exceed the £500,000 limit, the additional expenditure will continue to receive preferential tax relief, with writing-down allowances at the 8% and 18% mark.
What will happen in 2016?
In his Budget speech, the Chancellor indicated that he’d make an announcement on the AIA threshold during his next Autumn Statement, but also said that he was aware that the threshold could not return to its pre-2014 levels.
He said: “I am clear from my conversations with business groups that a reduction to £25,000 would not be remotely acceptable – and so it will be set at a much more generous rate.”
What do the experts think?
Tom Evennett, Private Markets Tax Partner at Deloitte, said: “We would like to have seen greater certainty on the Annual Investment Allowance (AIA) which provides an incentive for businesses to invest in plant or machinery. The exact limit of the allowance is now subject to who is Chancellor come the Autumn Statement.”
The British Chambers of Commerce (BCC) called for an extension of the current Allowance in its pre-Budget submission, so was disappointed about the lack of clarity over its future threshold.
John Longworth, the organisation’s director general, said: “A stable, permanent Annual Investment Allowance would give businesses the certainty they need to make investment decisions, and help to rebalance the economy towards more sustainable growth. We will be pushing relentlessly for the AIA to be maintained at £500,000 over the coming months, and will campaign for the Chancellor’s promise to be actioned immediately after the General Election.”