From 1 April for companies and 6 April for other businesses, the annual investment allowance (AIA) was slashed from £100,000 to £25,000, says Tax Tips & Advice. The great thing about the AIA is that, compared to the capital allowance rules, it allows you a “speedy” tax deduction of 100% of the cost of equipment against your profits in the year of purchase. Where your accounting year “straddles” the date of change, the new allowance will be “scaled down on a time basis using transitional rules”.
This is important if you’re thinking of buying anything for your business. Say your company’s 2011/2012 financial year ends on 30 June 2012 and you buy a £25,000 truck on 15 June, you’ll only be able to claim £6,216 (91/366 x £25,000) against profits.
To avoid this, defer the purchase until after 30 June. A “quirk” means that a tax deduction isn’t due until the equipment is actually used. This means that if you delay using the truck until 1 July (either by storing it or delaying delivery), the full AIA for 2012/2013 can be claimed. Where this happens, “don’t forget to tell your accountant” so that he makes the correct calculation.