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Reduction in Capital Allowances from 2012
by Haines Watts Humber on 14 December 2011
As we enter 2012 businesses planning capital expenditure should be aware of a significant change from April in respect of Capital Allowances.
Since 2010 all trading businesses have benefitted from being able to claim an immediate write down of 100% on all plant and machinery up to a value of £100,000. This relief is known as the Annual Investment Allowance (AIA). However, from 1 April 2012 for companies (6 April for unincorporated businesses), AIA will only be available on £25,000 of expenditure in any year.
There are complicated provisions which govern what happens when an accounting period overlaps 31 March (for companies) as AIA will be calculated on a pro rata basis. However, if expenditure is incurred after 31 March 2012, no AIA benefit is available for that part of the accounting period before 1 April 2012.
For example, a company with a year end of 30 September 2012 will be entitled to a maximum AIA of :
a) 50% x £100,000 = £50,000
b) 50% x £25,000 = £12,500
———–
£62,500
———–
If the company spends £62,500 on machinery after 31 March 2012 it will only be entitled to AIA on £12,500. Alternatively, if the same expenditure is incurred prior to 1 April 2012, the AIA benefit would be on the whole expenditure of £62,500.
It should be noted that writing down allowances are still available on expenditure not benefitting from AIA, but from 1 April 2012 these will reduce from 20% to 18% per annum.
The very clear message is that anyone planning capital expenditure, which could exceed the new AIA limits, should incur this expenditure before 1 April 2012.
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