Capital Allowances - take advantage before changes on 6 April 2012

Changes set to take effect on 6 April 2012 could have a serious impact on the amount of Annual Investment Allowance (AIA) available on expenditure such as IT and office equipment, fixtures and fittings.

Annual Investment Allowance (AIA)

For example, taking an accounting year ending 30 April 2012, the maximum AIA available will be £94,876. However, for purchases made between 6 April 2012 and 30 April 2012 the AIA is limited to £1,707 (£25,000 X 25/366 days).

Why is this?

• Since 6 April 2010, up to £100,000 of expenditure on ‘plant and machinery’ (which includes IT, office equipment, fixtures and fittings) can be fully relieved for tax during the business’s accounting year of expenditure by making a claim for AIA in the capital allowances computation.

• This maximum limit for AIA is being reduced to £25,000 as from 6 April 2012.

There are two main rates of Writing Down Allowance (WDA) available:

Main pool:

• Currently the rate of WDA on plant and machinery is 20%. As from 6 April 2012 this WDA rate reduces to 18%.

Special Rate pool:

• Until 5 April 2012, the rate of WDA on integral features, some cars, long life assets and certain thermal insulation is 10%. After that date the rate of WDA will be reduced to 8%.

Planning:

Given the reduction in amount of AIA and WDA available from 6 April 2012, it is worthwhile reviewing your anticipated future fixed asset expenditure and bringing some purchases forward prior to 6 April 2012 to take advantage of the higher rates, particularly the AIA, while still available. Care should be taken and our advice sought in advance of any significant purchase as timing is extremely important in order to maximise entitlement to AIA.

Short Life Assets (SLA)

From 6 April 2011, it has been possible to make an SLA claim where an asset is not expected to last more than eight years (previously four years). Bearing in mind that assets in the main pool can already take up to 20 years to be almost fully relieved for tax, businesses should look very closely at items purchased after 6 April 2011 and ensure consideration is given to making an SLA claim where the specific asset is not expected to last more than eight years - realistically this could cover quite a number of assets!