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Capital Allowances

The capital allowance regime changed once again on 1 January 2013; the current provisions offer businesses a significant tax saving opportunity – an increase to £250,000 in the annual investment allowance (AIA).  

This gives 100% tax relief for expenditure on plant, machinery, fixtures, fittings (but not cars) which would normally be written off over many years.  The relief is introduced for only a two year period, and it will revert back to £25,000 from 1 January 2015.  There is, therefore, a limited opportunity to maximise tax relief on capital costs. Expenditure not qualifying for AIA will still qualify for writing down allowances.

Rates of AIA

  • £100,000 - up to 31 March 2012 for companies and 5 April 2012 for unincorporated businesses
  • £25,000 - up to 31 December 2012for all businesses
  • £250,000 - from 1 January 2013 to 31 December 2014 for all businesses
  • £25,000 - from 1 January 2015 for all businesses

AIA Example – business with year end
28 February 2013

The maximum AIA for the year is £68,750, being:

  • Period between 1 March 2012and 31 March 2012 - £8,333(£100,000 x 1/12)
  • Period between 1 April and 31 December  2012 - £18,750 (£25,000 x 9/12)
  • Period between 1 January and28 February 2013 - £41,667(£250,000 x 2/12)

However, because of the way the allowance works the 100% relief is capped at £31,250 for expenditure between 1 March and 5 April and at £22,917 for expenditure between 6 April and 31 December 2012.

AIA example – business with year end
31 March 2013

The total maximum AIA for the year is £81,250 being:

  • Period between 1 April and31 December  2012 - £18,750 (£25,000 x 9/12)
  • Period between 1 January and31 March 2013 - £62,500(£250,000 x 3/12)

Once again timing is important. Because of the way the allowance works the 100% relief on expenditure between 6 April and 31 December 2012 is capped at only £25,000.

There will be similar issues with the transition out of the higher rate of allowance – most businesses will have just one year in which the full £250,000 may be claimed.  You will need to plan carefully on timings to maximise your AIA.  It is also worth remembering that 100% relief is due, in addition to the AIA, in respect of certain “green” assets acquired – see www.eca.gov.uk for details.  A proper identification of capital costs between the relevant categories can increase the relief available substantially.

 

 

 

Date: 30th July, 2013
Author: Cathy Corns

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