Investing in plant or machinery? Why it might be a good idea to bring forward your purchasing plans…

In a measure designed to stimulate business investment, the Annual Investment Allowance (AIA) was further increased in the Budget 2014 to £500,000.

This meant that businesses investing in purchases of qualifying plant or machinery, such as machinery, vans or computer equipment, could benefit from an increasing level of tax relief against their purchase.

Annual Investment Allowance the basics…

The AIA provides a 100% deduction for the cost of most plant and machinery (not cars) purchased by a business up to an annual limit and is available to most businesses.

The maximum amount of the AIA was increased from £25,000 to £250,000 for the period from 1 January 2013 to 31 December 2014. This was then further increased to £500,000 from 1 April 2014 for companies (or 6 April 2014 for unincorporated businesses) until 31 December 2015. However, the AIA is set to return to just £25,000 after this date.

Where a business has an accounting period that spans either the operative date of the increase to £500,000 on 1 (or 6) April 2014, or the operative date of the reversion to £25,000 on 1 January 2016, transitional rules will apply (see examples below).

Where businesses spend more than the annual limit, any additional qualifying expenditure generally attracts an annual writing down allowance of only 18% or 8% depending on the type of asset.

Please note that only one claim for AIA can be used in a group of companies or individual companies under common control.

What could qualify under the Annual Investment Allowance?