As we advised in June this year, from April 2012, the Annual Investment Allowance (AIA) limit will be reduced from £100,000 to £25,000. The AIA enables businesses to claim the full cost of most new capital assets, such as vans and plant and machinery, against their profits. Any excess expenditure over the AIA limit will receive an allowance of 20% / 10% (18% / 8% from April 2012), depending on the type of capital asset acquired.
The reduction in the AIA to £25,000 is likely to affect those businesses investing heavily in plant and machinery. As a result taxable profits will be higher and tax bills will rise. Additionally, tax credits may fall, possibly raising the “tax” bill significantly.
Below is an example of how the changes may affect the profits of a business investing £100,000 in plant and machinery:
Year ended |
|
31 March 2012 |
31 March 2013 |
|
|
£ |
£ |
Profit Before Tax |
150,000 |
150,000 |
|
|
|
|
Capital Allowances |
|
|
AIA |
|
(100,000) |
(25,000) |
Writing Down Allowance |
|
(13,500) |
|
|
|
|
Net Profit |
|
50,000 |
111,500 |
If you are intending to invest in plant and machinery, the above highlights the benefit of incurring the expenditure prior to April 2012 and that now is the time to be thinking of what your business is going to be needing in way of capital items in the years ahead. Please note also that the closer to April 2012 that you leave the capital spending, the higher the chance that you may not fully utilise the whole allowance available.
It is important to note that the reduction in rates is not a withdrawal of what can be claimed for the cost of equipment, but simply a delay in the period to which a business receives relief on the expenditure.
You should also note that the AIA limit of £100,000 is also available for the current tax year, so it is actually possible to incur capital expenditure of up to £200,000 prior to April 2012 (i.e. £100,000 in the year to April 2011 and £100,000 in the year to April 2012) with the full amount being deductable from your profits.
If you have significant planned expenditure and wish to know how this will impact upon your business please do not hesitate to get in touch.
|
