Businesses must carefully plan their capital expenditure
programmes if they are to make best use of the new
£50,000 annual investment allowance (AIA).
Expenditure on most business plant and machinery can
qualify for the allowance, which gives 100% tax relief in
the year of purchase. It applies to expenditure from 1
April 2008 for companies, and from 6 April 2008 for sole
traders and partnerships.
Not surprisingly, cars do not qualify. However, there is
a separate 100% allowance for the cost of new cars
with carbon dioxide emissions of not more than
110g/km. The 100% first year allowance for designated energy-saving or beneficial plant or
machinery also continues alongside the AIA, as does the 100% allowance for capital expenditure on
research and development. Expenditure on long-life assets and assets for leasing qualifies for the
AIA.
If you spend more than £50,000 in a year, the excess expenditure will only attract a
writing-down
allowance, which has now been reduced to 20% from 25%. It may therefore be worth bringing forward
or delaying expenditure to avoid exceeding the £50,000 AIA limit in any one year.
The allowance is proportionately increased or reduced for accounting periods that are
longer or shorter
than 12 months. There is also a restriction where a period spans the introduction date. So if, for
example,
your company makes up accounts for the year to 31 December 2008, the maximum entitlement to AIA
for that year is £37,500 based on the period 1 April to 31 December 2008.
Further aspects of the AIA that require care include the rules on related businesses.
Companies that form a group are entitled to only one AIA between them. Companies
that do not form a group, but are controlled by the same person or persons, will also
share just one AIA if they are ‘related’, eg sharing business premises. The same goes
for unincorporated businesses under common control. However, if a sole trader also
controls a limited company, both businesses will be entitled to their own AIA,
regardless of whether they are ‘related’.
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