The enhanced allowance - time has come to either use it, or lose it

Posted on 26/03/15

The Annual Investment Allowance (“AIA”) is a 100% deduction against taxable profits based on total expenditure incurred on qualifying plant and machinery in an accounting period and is designed to stimulate business investment in plant or machinery.

You can claim capital allowances on items that you keep to use in your business. These are known as ‘plant and machinery’. Higher value company purchases are held as assets on the company’s balance sheet and their value is depreciated over time. Company assets are not tax-deductible, and the depreciation charge is not allowed for tax purposes. Instead a system of capital allowances exists that enable companies to obtain tax relief on the value of purchases, subject to various limits and conditions.

Allowance Increased to £500,000 For This Year Only

The amount was temporarily increased from £25,000 to £250,000 for 12 months to 31 December 2014 and has now been extended to 31 December 2015 with the increase to £500,000.

In total, the AIA has changed 4 times since 2008. But the most important news is that it is due to change again, to £25,000, on 1 January 2016. This is of course subject to amendment and in this year there will be a Budget on 18th March but this could be subject to any change in the Government following the election on 7th May.

The Government is hoping that small and medium sized businesses will take advantage of the current enhanced allowance to increase, or bring forward, their capital expenditure plans. So there is no time like the present in making strategic investment in your business for maximum tax advantage. If you do not have a year end of 31 December careful planning is needed to ensure that when you incur the expenditure it falls into the correct qualifying period.

What Counts

Items that count as ‘plant and machinery’ can be more than just equipment, plant and machinery that you would readily recognise as qualifying. This includes the following:

• Integral features of a building (for example lifts, escalators, moving walkways, space and water heating systems, air-conditioning and air cooling systems, hot and cold water systems, electrical systems, lighting systems, external solar shading) • Some fixtures (for example fitted kitchens, bathroom suites, fire alarm and CCTV systems) • Alterations to a building to install other plant and machinery (but excluding repairs).

What Does Not Count

What doesn’t count as ‘plant and machinery’ are items such as the following;

• Buildings, including doors, gates, shutters, mains water and gas systems • Land and structures, such as bridges, roads, docks • Items used only for business entertainment, such as a yacht • Items you lease, rather than own

How Wilkins Kennedy Can Help

Our team has been helping many businesses across the South East take advantage of this unique opportunity. If you would like to know more and would like advice about your plans, contact us today for a no obligation discussion.

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