From April 2012 (1 April 2012 for companies and 6 April 2012 for self employed) the maximum amount of the annual investment allowance (AIA) will be reduced from £100,000 to £25,000 a year for business investment in most Plant and Machinery.

The AIA gives a 100% allowance on expenditure on the amounts mentioned above for most Plant and Machinery (excluding cars).

Businesses whose accounting period spans the relevant operative date in April 2012 will need to apportion the maximum allowances. Therefore the above changes will start affecting businesses whose accounting periods commence after 6/4/2011 (see below for example).

Where businesses spend more than the annual limit of AIA the additional expenditure is dealt with in the normal capital allowances regime. These rates will also be reduced from April 2012. The capital allowance rates that can be claimed on the balance of plant and machinery expenditure carried forward will be reduced from a) 20 % to 18% and from b) 10% to 8% for main rate and ‘special rate*’ expenditure respectively.

*Special rate expenditure includes expenditure on ‘integral features’ of a building structure.

A 100% first year allowance can still be claimed on energy and water efficient plant.

Example

A company with an accounting year end of 30 September 2012 would calculate its maximum Annual Investment Allowance (AIA) based on -

a) Maximum AIA for period 1/10/2011 to 31/3/2012 – 6/12 x £100,000 =£50,000.

b) Maximum AIA for period 1/4/2012 to 30/09/2012 - 6/12 x £25,000 = £12,500.

The company’s maximum AIA for the transitional period would therefore be the total of a) and b) = £62,500 (£50,000 + £12,500). In relation to b) no more than £12,500 of company’s actual expenditure in that part period would be covered by the transitional AIA entitlement.

Please contact us if you require any further information.