New statistics have shown that over half of small and medium-sized enterprises (SMEs) are unaware of changes to the Annual Investment Allowance (AIA).
Research by Close Brothers Asset Finance found that 58% of SMEs were unaware that the government had increased the AIA limit, and that just 13% were planning to significantly increase investment in 2019 as a result of the changes. These are shocking statistics and highlight the lack of tax advice being provided to SMEs.
The changes were introduced following the 2018 Budget, when the Chancellor announced an increase in the tax relief available for investment in plant and machinery from £200,000 to £1,000,000.
AIA allows businesses to write off 100% of qualifying capital expenditure against their taxable profits for the same period, up to the threshold.
AIA is available for most assets purchased by a business, including machines and tools, vans, lorries, diggers, office equipment, building fixtures and computers.
This should be a significant consideration when purchasing a commercial property or residential property to be let as a ‘furnished holiday let’, but unfortunately is often overlooked due to lack of awareness.
For expenditure incurred on or after 1 January 2019, the maximum AIA has increased to £1,000,000. This is for a two-year period and is set to revert to £200,000 for expenditure incurred on or after 1 January 2021. This should be a big factor in the capital spending plans for any business.
Care is needed in some circumstances if the accounting year end of your business is not 31 December.
As the accounting periods of many businesses span this date, a pro rata calculation of the maximum entitlement is required. Where a business has an accounting period that spans 31 December 2018, the maximum allowance for that period is potentially the sum of:
- the maximum AIA entitlement based on the £200,000 annual cap for the portion of the accounting period falling before 1 January 2019; and
- the maximum AIA entitlement based on the £1,000,000 cap for the portion of the accounting period falling on or after 1 January 2019.
A more detailed explanation of the changes to Capital Allowances introduced in the 2018 Budget can be found here.
This publication has been prepared by RRL LLP. It is to be treated as a general guide only and is not intended to be a comprehensive statement of the law or represent specific tax advice. No liability is accepted for the opinions it contains, or for any errors or omissions. All rights reserved.