Making the most of the Annual Investment Allowance

If you are considering investing a considerable amount in plant and machinery, it’s worth considering the tax implications first.

The annual investment allowance (the amount of capital expenditure you can write off against your tax able profits in the period they are purchased) is set to reduce from £500,000 to £200,000 per annum on 1 January 2016.

Although this is still a significant allowance, where your accounting period spans this date, the transitional rules mean that if you time your spend incorrectly you could be losing out on valuable relief.

For example, if your accounting period ends on 31 March 2016, the amount of relief you would be entitled to would equal the time apportioned allowance of £500,000 for the period to 31 December 2015 ie 500,000 x  9/12 = 375,000 plus the time apportioned allowance of £200,000 for the period to 31 March 2016 ie 3/12 x 200,000 = 50,000, giving a total allowance of £425,000 for the whole accounting period.

However the relief available for any expenditure incurred in the period 1 January – 31 March 2016 is limited to the apportioned amount for that period ie £50,000.