Now is the time to invest in plant & machinery for maximum tax benefits

Calculator As you will probably be aware the Annual Investment Allowance (AIA) was increased tenfold, from 25K to 250K by the Chancellor in his Autumn Statement with effect from 1st January 2013 for a period of two years.  This measure was primarily designed to encourage and support investment by SMEs in plant and machinery. 

So now is the time to invest in plant and machinery for maximum tax benefits, but what is it and who can claim?

What is Annual Investment Allowance (AIA)?
The AIA is a type of capital allowance which offers 100% on qualifying expenditure in the year of purchase.  The maximum that can be deducted from taxable profits is currently £250K. For accounting periods which span 1 January 2013 transitional provisions will apply, where businesses will receive a proportion of the full £250,000 AIA.

Generally a qualifying expenditure is:-

  • Expenditure on the provision of plant or machinery wholly or partly for the purposes of a qualifying activity that the person incurring the expenditure  carries on; and
  • The person incurring the expenditure owns the plant or machinery as a result of incurring the expenditure.

Plant or machinery covers almost every sort of asset a person may buy for the purposes of his/her business excluding land, buildings and cars.

Typical examples of plant or machinery include:

  • computers and all kinds of office furniture and equipment
  • vans, lorries, trucks, cranes and diggers
  • ‘integral features’ of a building or structure
  • other building fixtures, such as shop fittings, kitchen and bathroom fittings
  • all kinds of business machines, such as printing presses, lathes and tooling machines
  • tractors, combine harvesters and other agricultural machinery
  • gaming machines, amusement park rides
  • computerised /computer aided machinery, including robotic machines
  • wind turbines and fibre optic cabling.

Who can claim?
Almost any entity can claim provided the business activity satisfies one of these criteria: trading; commercial property letting; office or employment; or leasing. The only business structures which are not eligible for the AIA are mixed partnerships (that is, partnerships comprised of both individuals and companies) and trustees.

Are there any exemptions?
Yes, there are assets that would not qualify for the allowance, such as cars, and you should seek advice accordingly.

What about green technologies?
Investment in certain green technologies is eligible for enhanced capital allowances (ECA) in addition to the £250,000 Annual Investment Allowance and, like the AIA, would be eligible for 100 per cent tax relief in the first year. A set of qualifying technologies is available on the ECA website.

What happens after the first £250,000?
Generally once the investment goes beyond the AIA threshold, a flat rate of 18 per cent is applied to apportion the investment over subsequent years.

Get in touch if you would like advice about Annual Investment Allowances or other tax issues.