Capital Allowances for Machinery and Vehicles
The Chancellor announced that, for two years from 1 January 2013, the annual ceiling on Annual Investment Allowances (AIAs) will be increased from £25,000 to £250,000. Broadly speaking, AIAs allow the whole cost of machinery and vehicles (other than cars) to be written off, for tax purposes, in the year of purchase.
However, this does not necessarily mean that a company (or an unincorporated business) will be able to go out in January and buy even £100,000 of machinery that will qualify for the increased allowance. This is because special transitional rules apply where the company’s (or the trader’s) accounting date is other than 31 December. For example, if the accounting date is 31 March, the maximum qualifying expenditure for the whole of the year to 31 March 2013 will be:-
9/12 (months) x £25,000 £18,750
3/12 (months) x £250,000 £62,500
Maximum qualifying expenditure £81,250
Of that £81,250, only £25,000 may be spent before 1 January 2013
The full £250,000 allowance will then be due for qualifying expenditure in the next accounting year (to 31 March 2014).
That was a very simple example, and in practice the calculation can be much more complex. Furthermore, there are some complicated rules for determining when the purchase is treated, for Annual Investment Allowance purposes, as being made – it is not usually either the day you sign the order of the day you sign the cheque. Accordingly, if you are contemplating a major purchase, or a programme of capital expenditure, we would strongly recommend you to contact us for individual advice.