Annual Investment Allowance – Make use of it while it lasts!

Before 2008, companies investing in capital assets – things like new machinery, computers, furniture and some building improvements – could only get tax relief on those assets over quite a few years. Then in 2008, the Chancellor Alistair Darling introduced the Annual Investment Allowance which gave businesses full relief for most capital assets that qualified for capital allowances in the year of purchase, up to a certain limit. The limits have changed a number of times over the years, starting out at £50,000, then up to £100,000, then down to £25,000 in 2012. The limit is currently a very generous £500,000 per 12 month period, more than enough for most small & medium sized businesses.

There are signs that the good times for tax relief on capital purchases are coming to an end however. The current £500,000 limit runs out on 31 December this year, and a new, lower rate will apply from 1 January 2016. The exact limit has not yet been announced (it was going to be £25,000 but it has been suggested this won’t now be the case), but it is expected to be significantly lower than the current limit. Businesses should start thinking about their planned capital purchases now, and carefully considering the timing if they want to maximise their tax relief. Where possible, companies making significant capital purchases should make them before 31 December. There are quite complex rules regarding the timing of capital expenditure, so just getting an invoice dated 29th December will often not be sufficient. Companies with an accounting period spanning the 31 December, will also have a reduced, time apportioned Annual Investment Allowance, and will invariably have less allowance than they might think even when buying before the end of the year.

With the Annual Investment Allowance expected to come down, it will become more important to look at other enhanced capital expenditure reliefs. These have perhaps not been considered much in recent years as they didn’t offer anything extra over and above the Annual Investment Allowance, but will become more important again. Examples of these reliefs include R&D Capital Allowances for companies engaged in Research & Development, and Enhanced Capital Allowances for environmentally friendly and energy saving plant & machinery.

We might find more out about the new Annual Investment Allowance limits in the Chancellor’s post election budget in July, or we might have to wait until the Autumn Statement, but either way it is important to start planning for it now rather than waiting. Please do get in touch with us if you want to discuss your capital expenditure plans to help maximise your tax savings.


If you would like to find out more on the subject, please contact 01772 821 021.