Act now to claim your Annual Investment Allowance

Beneficial changes to capital allowances
The United Kingdom Annual Investment Allowance has increased fivefold from £200,000 to £1,000,000 for a temporary period of two years, from 1 January 2019. Your business can take advantage of the Annual Investment Allowance changes, but the timing of your capital purchases is crucial to maximise your tax saving.*

How does the Annual Investment Allowance (AIA) work?
The annual investment allowance is designed to give 100% first year tax relief for qualifying expenditure on plant and machinery.

Simply put, a business with profits before tax of up to £1,000,000 could reduce its income/corporation tax bill to zero by purchasing new equipment of the same value. Annual expenditure above £1,000,000 will attract the usual 18% annual Writing Down Allowance (WDA).

What plant & machinery is eligible for the AIA? Plant & Machinery include the following items:

• Materials handling equipment
• Construction equipment
• Aerial work platforms & cranes
• Machinery & engineering tools
• Manufacturing & production equipment
• Computers & IT equipment
• Medical & scientific equipment
• Commercial vehicles & trailers

Expenditure on cars are excluded from the AIA, but continue to attract WDA.

Why is timing crucial?
To gain the greatest benefit of the AIA timing of your capital purchases is important as you may otherwise miss the opportunity to claim the maximum AIA and as a result pay more tax than you need to.

Under the HMRC’s transitional rules the amount of relief you can claim depends on the timing of your capital purchase and your business’ year end.

For example, if your year end is 30 September you should purchase and start using the asset of £800,000 before 30 September 2019 (time apportioned amount of £200,000). You will have a further £1,000,000 AIA available in the year to 30 September 2020. For avoidance of doubt, the £800,000 for year end 30 September 2019, the total capital purchases for the year and so you would need to include any other purchases made in that same period.

Further examples of how the transitional rules apply are shown in the box chart. Dates and amounts for expenditure in order to maximise tax benefits according to business year end.

Can I finance the equipment and claim the AIA?
Yes, but not all types of leases qualify. It is therefore important the plant and machinery is leased under the “right” type of agreement. For example, a finance lease or hire purchase structured in the right way should enable you to claim the maximum AIA.

How can you benefit?
The higher AIA is particularly good news for small and medium sized businesses.

DLL has the type of finance options available to enable you to purchase your new equipment and take full advantage of the AIA. Do not miss out and get in touch!

*We advise that you seek advice from your accountant or finance director before acting, or refraining from acting on the information provided.