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Short term tax benefit for companies investing in assets

Changes to Capital Allowances

If you are at all likely to be investing in assets over the short to medium term there are some changes to the regime that might make it worth accelerating your plans.  Two important changes to the Capital Allowances legislation were announced in the 2012 Autumn Statement.  

Annual Investment Allowance (AIA)

The AIA was introduced with effect from 1 April 2008 and is a 100% deduction for business expenditure incurred on qualifying plant or machinery (other than cars). The announcement in the 2012 Autumn Statement that the AIA would increase from £25,000pa to £250,000pa, whilst to be welcomed, isn't as straightforward as it first appears.

As a reminder, there have been several changes to the AIA in recent years:

From 1 April 2008 £50,000
From 1 April 2010 £100,000
From 1 April 2012 £25,000
From 1 January 2013 £250,000
From 1 January 2015 £25,000 (proposed)

To complicate things further there are transition rules not only when the allowance increases but also when it decreases, which affect the magnitude of the AIA available to a company in a particular accounting period. Finally, you need to bear in mind that the increased AIA may only be with us for 2 years so some businesses may wish to accelerate capital expenditure in case this more generous AIA is not extended.

Short Life Assets (SLA)
Another change which may be beneficial to your business is the extension of the period over which assets can be treated as short life assets from 4 to 8 years. The advantage of this treatment is that a balancing allowance i.e. full tax relief for capital expenditure can be obtained without a cessation of the trade if the elected asset is disposed of for less than its tax value within this 8 year period. This is beneficial for assets which are likely to be scrapped or sold for a negligible value within 8 years of acquisition. The company must make an election for an asset to be classified as a SLA. 

What to think about?

If you're planning to incur significant capex in the near future it would be worth speaking with your tax adviser - my tax colleagues at PEM are working with a number of clients already to maximise their capital allowances claims.


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