Temporary Increase in Annual Investment Allowance HMRC has announced a temporary increase in in the Annual Investment Allowance (“AIA”) which will mean significantly faster tax relief on purchases of plant and machinery from 2019. The Government has increased the AIA from £200,000 to £1,000,000 for the two years from 1 January 2019 to 31 December 2020. This measure is designed to stimulate business investment by providing an increased incentive for businesses to invest in plant and machinery. Background Regardless of size most businesses have been able to claim AIA on their expenditure on qualifying plant and machinery up to a limit of £200,000. Businesses are able to claim AIA in respect of their expenditure on both main rate and special rate plant and machinery. There are certain exceptions which are set out in section 38B of the Capital Allowance Act 2001, the main exception being cars. The AIA is a 100% allowance that applies to all qualifying expenditure up to a specified annual limit. Where investment exceeds the annual limit any additional qualifying expenditure will attract relief under the normal capital allowances regime and will enter either the main rate or special rate pool, attracting writing down allowance at the main rate or special rate respectively. Transitional Rules The increase in the AIA to £1,000,000 from 1 January 2019 is a temporary increase. After two years the allowance will revert back to £200,000. Where accounting periods span the date of the increase or the date of the reversion back to £200,000 transitional rules apply. Under these rules the allowance is apportioned on a calendar year basis but with certain restrictions for the period before the increase and the period after the reversion back to £200,000. The restrictions written into the Finance Bill mean that you need to spread your expenditure very carefully to make the most of the increased allowance. The examples below demonstrate the restrictions. Example 1 – Period spanning date of increase to £1m A company with a year end of 30 June 2019 will have an allowance of £600,000, consisting of: (a) £100,000 (£200,000 x 6/12) for the period 1 July 2018 to 31 December 2018. (b) £500,000 (£1,000,000 x 6/12) for the period 1 January 2019 to 30 June 2019. However, in relation to (a) (the period covering 1 July 2018 to 31 December 2018) no more than £200,000 of the company’s actual expenditure in that period can be covered by transitional AIA. If this is fully utilised then it will reduce the allowance available for expenditure between 1 January 2019 and 30 June 2019 to £400,000. Example 2 – Period spanning date of reversion to £200,000 A company with a year end of 31 March 2021 will have an allowance of £800,000, consisting of: (a) £750,000 (£1,000,000 x 9/12) for the period 1 April 2020 to 31 December 2020. (b) £50,000 (£200,000 x 3/12) for the period 1 January 2021 to 31 March 2021. However, in relation to (b) (the period covering 1 January 2021 to 31 March 2021) no more than £50,000 of the company’s actual expenditure in that period can be covered by transitional AIA. These complex transitional rules make the planning and timing of expenditure important to ensure that the allowance is maximised. For more detailed information on the temporary increase in AIA visit the government website at https://www.gov.uk/government/publications/temporary-increase-in-the-annual-investment-allowance/temporary-increase-in-the-annual-investment-allowance   The S4B team   S4B are a team of Chartered Accountants based in Maidenhead. Please contact us to see how the temporary increase may help your company’s growth plans on 01628 623444 or email us at [email protected]