Capital Allowances Update - changes to Annual Investment Allowances
What are Capital Allowances?
Capital Allowances allow a business to offset the cost of it’s newly acquired plant, machinery and equipment against its taxable profits for the year – ultimately reducing the tax payable in the process.
A business can claim capital allowances when it purchases any assets for the business. This generally includes equipment such as computers or tools, machinery, or any type of vehicle including cars, vans and trucks. Some or all of the value of the items can be deducted from the company’s tax bill (some special rules apply in some cases - cars). Other capital allowance qualifying costs include research and development (R&D), patents and more major renovations to business premises.
Most of these assets will fall into the Annual Investment Allowance category, (all plant, machinery and equipment except for cars and some other special items will) whereby the company can purchase up to £200,000 of assets in a year and still claim 100% of the costs of the assets against their tax bill. Anything over this amount they can only claim 18% of the cost per year – known as writing down allowance.
Recently, a number of changes to capital allowances were announced at the Budget, including an increase in the Annual Investment Allowance (AIA), for two years to £1 million. This means that a company who regularly purchases plant and equipment can spend above £200,000.
Because the changes apply from the 1st January 2019, transitional rules apply, meaning that the full amount of £1million will not necessarily apply to your business straight away. So you need to plan carefully how much you spend and when.
For example, if your business’ year end is 30 June 2019 the maximum AIA would be £600,000. This being 6/12 x the old £200,000 limit plus 6/12 x the new £1 million limit. The following year to 30 June 2020 would be entitled to the full £1 million.
If you are planning to purchase any of the assets mentioned for your business, or have any questions as to how to maximise use of capital allowances, get in touch and we would be happy to help.