Capital Allowances are Changing - Are you ready?!

This limit was then increased to £100,000 for two years, 2010/11 and 2011/12.

As from the 5th April 2012, the Annual investment allowance will be scaled back by three quarters, from its current position of £100,000 to a merge £25,000.

Furthermore, the rate at which taxpayers receive an annual writing down allowance is being reduced from, 20% (11-12) to 18% (12-13).

With careful planning, it may be possible to extend this allowance, to reap the benefits over future periods.

For example, if a trader with profits of £25,000 annually, requires a piece of machinery costing £100,000.

By bringing the purchase of the machinery forward into the 2011/12 year, you are able to utilise the increased level of AIA, thus create a taxable loss for the year of £75,000. That loss can then be carried forward to set against future profits of the same trade.

If the purchase is delayed to into the 2012/13 tax year, the Annual Investment Allowance is reduced to £25,000 and only 18% writing down allowance will be available on the remaining £75,000.

When looking at this example the net first year differences are considerable, in the first instance the full 100% of expenditure being allowable, and the second only 38.5%.

This complicated somewhat for year ends other than 5th April and 31st March, where careful timing of the purchase is required.

It is also worth mentioning that HMRC may challenge Capital Allowance claims where the machinery is not actually on the premises and in operation at the year end.

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