Annual Investment Allowance Increased!

7th January 2013

The threshold for the Annual Investment Allowance (AIA) for plant and machinery increased from £25,000 to £250,000 with effect from 1st January 2013. The increased rate will last for two years and represents a significant opportunity for small and medium sized businesses looking to invest in Plant and Machinery.

The increase is likely to incentivise farmers to invest in farm machinery and renewable energy to stimulate activity and grow their business. Farmers will be able to claim 100% capital allowances against their income on up to £250,000 of qualifying plant and machinery per year, hence reducing their tax liability. This offers an opportunity to plan expenditure around the introduction of the AIA increase in order to benefit from reduced tax payments to HMRC.

It is essential that a good analysis is made of what can and cannot be claimed for, particularly with regards to Plant which is slightly more ambiguous where certain items can become part of a building and therefore cease to be classed as Plant.

As with previous changes in the AIA, there will undoubtedly be some tricky transitional rules and those looking to take advantage of the increased rate should be careful not to fall foul of any such rules in the year of introduction, an accountant will be best placed to advise and consider how the financial year end affects the allowance actually available.

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