Annual Investment Allowance to Reduce to £25,000 in 2012

As of April 2012, the maximum amount of annual investment allowance (AIA) reduces to £25,000. Currently, businesses can write off 100% of the cost of acquiring qualifying assets against their taxable profits up to an annual limit of £100,000.

The revisions to the measure will take effect from 1 April 2012 for businesses within the charge to Corporation Tax (CT), and 6 April 2012 for businesses within the charge to income tax.

Businesses that invest over £25,000 will continue to be eligible for plant and machinery writing-down allowances on expenditure not covered by the AIA.

Assets that can be written off in this way include plant and commercial vehicles, computers and other equipment, however, cars do not qualify.

Things to consider prior to April 6th:

• You can currently reduce your taxable profits by up to £100,000
• If you are a self-employed, higher rate trader, you could save 40% or 50% of your qualifying investment.
• If you are self-employed or in partnership and your claim exceeds your taxable profit, the resulting tax loss could potentially generate refunds, or in certain circumstances be set against other income.
• If you are a limited company or a basic rate tax payer, you will be able to recover up to 20% of your investment.
• If you earn over £100,000, you could use the AIA claim to protect your personal tax allowance that may otherwise be lost without a claim.

The sizable reduction in allowance is not to be sniffed at, and will have significant impact on small businesses planning on making capital investments in this area.

Our recommendation is to seek advice now, and take advantage of the higher rate while you can. Contact B20Ltd