Annual Investment Allowance made Permanent at £200,000

Tue 14 Jul 2015

The Chancellor pledged in the March Budget that the Annual Investment Allowance would increase from the £25k currently legislated to come into effect on 1 January 2016.

In the Summer Budget, he delivered on that promise, setting the Annual Investment Allowance at £200k from 1 January 2016 and maintaining the Allowance at that level thereafter in order to encourage investment in plant and machinery.  

Making the AIA permanent and at a relatively generous amount is a very welcome measure.  Going forwards, this will make life simpler, without the need to check whether limits were exceeded in the separate parts of an accounting period straddling a change in amount of the allowance. Of course, there will be one further transitional period to watch out for, for any businesses that do not have calendar year ends.  So, where an AP straddles 1 January 2016, the maximum amount of AIA will be made up of two elements:

• The pro-rated amount of the £500,000 AIA in the period to 31 December 2015 (so, for a 31 March their end company this would be 9/12 x £500k = £375k); and
• The pro-rated amount of the £20,000 AIA for the period after 31 December (so, for a 31 March year end company this would be 3/12 x £200k = £50k)

In our example, the maximum AIA would therefore be £425,000.  However, the maximum expenditure in the second period could not exceed the calculated maximum for that part (i.e. £50k in our example).  Therefore, to gain maximum benefit of the current £500k temporary AIA, companies should look to invest prior to 31 December 2015.