Annual investment allowance increased to £250k

29th March 2013

Annual investment allowance increased to £250k

For a limited period, small and medium-sized businesses have a new incentive to increase or bring forward their capital expenditure on plant and equipment

In his Autumn Statement, the Chancellor raised the Annual Investment Allowance to £250,000 for a 24-month period starting from 1 January 2013.  This means that £250,000 can now be set against profits, reducing the amount of Corporation Tax to be paid and incentivising businesses to invest in new plant and equipment.  The previous allowance was just £25,000.

Graham Purvis, a partner at Robson Laidler LLP, said this “substantial increase in the allowance will come as good news to many small and medium-sized businesses as it will reduce their cost of investing in new plant and machinery to help take their business forward.

“However, it will only last for the next two years, so business owners wanting to take advantage of this generous tax relief may wish to consider bringing forward their capital expenditure budget while the allowance remains at this higher level.”

Most kinds of businesses can claim the allowance.  To qualify, the individual or company must be ‘carrying on a qualifying activity’ including trades, professions, vocations, ordinary property businesses, and employment or offices.  Trusts and mixed partnerships are ineligible.

For companies whose financial year does not coincide with the calendar year, the AIA will be on a pro-rata basis – ie, if it is 31 March, the AIA would be £25,000 x 75% (1 April 2012 to 31 Dec 2012) + £250,000 x 25% (1 Jan 2013 to 31 March 2013).  The following financial year would see the full £250,000 allowance come into effect.