Capital Allowances

Capital Allowances – Annual Investment Allowance (AIA)

The Chancellor today announced that the AIA limit will be permanently set at £200,000 with effect from 1 January 2016. The limit is currently £500,000, but was due to reduce to £25,000 in January 2016, so this is good news for businesses investing in equipment, machinery, etc.

The government have committed to maintaining this £200,000 level for the rest of the Parliament, which allows businesses to plan their spending with more certainty over the next five years.

Whilst it is very good news that the AIA has been permanently set at £200,000 great care is required in this transitional year as there is a bear-trap for the unwary.  For example, a business with an accounting period ending 31 March 2016 will only have an AIA of £50,000 if it leaves all of its capital expenditure to the last 3 months of its accounting period.  Hence, any business in this situation should still plan to incur its capital expenditure before 31 December 2015 which will ensure that it can secure AIA of up to £425,000 (and not be restricted to AIA of only £50,000).

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Feb 22

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