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Reduction in AIA – Is now the time to invest?

18.08.11: THE INFORMATION CONTAINED IN THIS ARTICLE HAS BEEN UPDATED DUE TO CHANGES IN GOVERNMENT LEGISLATION. THE LATEST INFORMATION CAN BE FOUND HERE…

From 6th April 2012, the government is reducing the maximum Annual Investment Allowance (AIA) from £100,000 to just £25,000, and businesses may find it beneficial to bring forward any future fixed asset expenditure in order to maximise tax benefits.

The previous government increased the AIA from £50,000 to £100,000 effective from April 2010. However the current coalition government is introducing the change as part of a wider package of corporate tax reforms announced at the June budget. The reduction applies to plant and machinery, including IT and office equipment, and fixtures and fittings.

As stated on the HM Treasury website, the purpose of the reduction in AIA is “to refocus the simplification and cash-flow benefits it offers to smaller businesses.”

The move is expected to affect 100,000 to 200,000 businesses – around 5% of the total. These businesses will still benefit from tax relief through the Capital Allowances regime, but over a longer period.

McLintocks Partner Alastair Jeffcott comments, “The current high allowance provides a good opportunity for those businesses scheduling fixed asset expenditure after 6th April 2012 to bring their purchasing plans forward where possible, if the total amount of qualifying expenditure is expected to exceed the new maximum allowance. It is important that if you are considering doing so, you speak to us so we can help you plan when your payments should ideally be made as timing is extremely important.

The effect of the change is already taking hold for all businesses with year ends that commenced after 6th April 2011, and to a greater degree than many businesses realise. The maximum total allowance is now reducing proportionately each month as we move through the current fiscal year.

If you need help or advise on how the changes in Annual Investment Allowance may affect your business contact one of the McLintocks Team today on 0845 680 7800.

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